Review

This article traces the consequences of an energy shock on the economy under two different monetary policy rules: (i) a standard Taylor rule, where the Fed responds to inflation and the output gap, and (ii) a Taylor rule with inertia, where the Fed moves slowly to the rate predicted by the standard rule.

This article reviews various approaches to the measurement of core inflation that have been proposed over the years using the stochastic approach to index numbers as a unifying framework. It begins with a review of how the concept of core inflation is used by the world’s major central banks, including some of the inflation-targeting central banks. 

This article examines the formation of expectations about future inflation over long horizons. A key issue that agents must confront is the possibility that the economic policy framework—especially the monetary policy regime—could change at some future date.

It is commonly supposed in public and academic discourse that inflation and big government are related. The authors show that economic theory delivers such a prediction only in special cases.