Sluggish inflation and optimizing models of the business cycle

Article Abstract:

Deviations were noted with regards to the ability of quantitative equilibrium models to illustrate the lagged reaction of inflation to monetary growth and the persistence of inflation observed in the US data. Only the inflation persistence model has a money growth-inflation lag that is similar to the one observed in the US data. The inflation persistence model and the Calvo model of price adjustment, meanwhile, have the ability to reproduce serial correlations of inflation that are almost alike with those in the US data.

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How the basic RBC model fails to explain US time series

Article Abstract:

The reduced form equations derived from a real business cycle (RBC) model proved to be unsuccessful in illustrating the dynamic features of the US time series. Utilization of time-domain approach showed that RBC model failed to take notice of vital propagation mechanisms used in describing lagged control variables. The model was unable to present lagged dependent variables and to analyze the serial correlation of the residuals of the reduced form equations.

Usage, Time-domain analysis

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More on the time consistency of monetary policy

Article Abstract:

A discussion was presented regarding a general equilibrium monetary model that is more effective than other traditional framework used in the analysis of time consistency in an optimal monetary policy. The model yield time inconsistency problem that is very much different from other proposed studies. It has an optimal deviation that can be negative and is generally finite.

Monetary policy

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