The Rise and Fall of U.S. Inflation Persistence

We estimate the path of inflation persistence in the United States over the last fifty years using an ARMA model of inflation with time-varying autoregressive parameter, motivated by the familiar New Keynesian framework. The estimated path of inflation persistence is consistent with a general reading of Federal Reserve history; inflation persistence is estimated to have declined substantially during Volcker and Greenspan's tenures from the high persistence of the 1970s. Interpreted in light of the theoretical framework, the results suggest that the Federal Reserve has placed increasing weight on inflation stability in recent decades.