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Title: The federal reserve's implicit inflation target and macroeconomic dynamics: A SVAR analysis Authors:  Haroon Mumtaz - Queen Mary University of London (United Kingdom) [presenting]
Konstantinos Theodoridis - Bank of England (United Kingdom)
Abstract: The purpose is to identify shocks to the Federal Reserve's inflation target as VAR innovations that make the largest contribution to future movements in long-horizon inflation expectations. The effectiveness of this scheme is documented via Monte-Carlo experiments. The estimated impulse responses indicate that a positive shock to the target is associated with a large increase in inflation and long-term interest rates in the US and the industrialised world. Target shocks are estimated to be a vital factor behind the increase in inflation during the pre-1980 period and are an important driver of the decline in long-term interest rates over the last two decades.