Munich Personal RePEc Archive

US Inflation 1980 - 2016. A Good Old Quantity Theory Approach

Olivo, Victor (2018): US Inflation 1980 - 2016. A Good Old Quantity Theory Approach.

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Abstract

This paper presents and discusses the econometric estimation of several models of inflation that follow the New Keynesian (NK) approach, and compares the results with those obtained with a model based on the quantity theory. The period of estimation is from the first quarter of 1980 until the fourth quarter of 2016. The main finding of the paper is that modeling inflation following a quantity theory approach produces a better overall explanation of the dynamics of the US inflation for the period under analysis than the ubiquitous New Keynesian models. Additionally, the quantity theory approach beats the New Keynesian models in offering a more coherent narrative of the relative deceleration that inflation has exhibited since the financial crisis (the so-called inflation puzzle).

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