Title: The U.S. economic dynamics and inflation persistence: A regime-switching perspective
Authors: Giovanni Di Bartolomeo - Sapienza University of Rome (Italy) [presenting]
Elton Beqiraj - Sapienza University of Rome (Italy)
Giuseppe Ciccarone - Sapienza University of Rome (Italy)
Abstract: The purpose is to contribute to the debate on the causes of the Great Moderation by revisiting the U.S. business cycle accounting for switches in the inflation-intrinsic persistence, formalized as hazard-function changes. We trace the existing contrasting evidence back to an identification problem that biases regime estimates and leads to misleading interpretations. Once we account for persistence switches, the empirical outcomes provide clear support to the good luck interpretation and suggest reinterpreting monetary regimes more in line with the central bankers' view. Structural changes in price and wage adjustments are also shown to play important and opposite roles in the Great Inflation.