We discuss the timing and strength of the Fed's reaction to the recent inflation surge within an estimated … macroeconomic model where long-run inflation expectations are heterogeneous and can lose their anchoring to the target. The … resulting inflation scare worsens the real cost of disinflation. We derive a closed-form solution that retains the entire time …

of monetary policy. We use a stylized macro model of Howitt (1992) to investigate inflation dynamics under alternative … interest rate in response to inflation. In particular, if the monetary authority only responds weakly to inflation, a … cumulative process with rising inflation is likely. On the other hand, a Taylor interest rate rule that sets the interest rate …

inflation volatility. Contrary to comparable models based on full rationality, the behavioral model predicts that inflation … volatility can be lowered if the central bank reacts to the output gap in addition to inflation. We test the opposing theoretical … reacting to the output gap in addition to inflation can indeed lower inflation volatility. …

the Phillips curve over time. We consider different specifications and different measures for inflation. Furthermore, we ….S. headline inflation has remained empirically relevant over the years. …

consider the implications of a risk premium that arises from endogenous market segmentation driven by variable inflation rates …. In the absence of autocorrelation in inflation, the risk premium is constant. If inflation is correlated, however, the …