Jeffrey C. Fuhrer

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This paper explores a monetary policy model with habit formation for consumers, in which consumers’ utility depends in part on current consumption relative to past consumption. The empirical tests developed in the paper show that one can reject the hypothesis of no habit formation with tremendous confidence, largely because the habit formation model(More)
The seminal work of Phelps, Taylor, and Cairo developed forwardlooking models of price determination that imparted inertia to the price leveh These models incorporate expectations of future prices and excess demand by imposing constraints (typically lag-lead symmetry constrainls) that force future variables to enter the specification. In this paper, I test(More)
A number of recent papers have developed dynamic macroeconomic models that incorporate rational expectations and optimizing foundations. While the theoretical motivation behind these models is sound, the dynamic implications of many of the specifications that assume rational expectations and optimizing behavior can be seriously at odds with the data, for(More)
In the conventional view of inflation, the New Keynesian Phillips curve (NKPC) captures most of the persistence in inflation. The sources of persistence are twofold. First, the “driving process” for inflation is quite persistent, and the NKPC implies that inflation must “inherit” this persistence. Second, backward-looking or indexing behavior imparts some(More)
Graduate student, Massachusetts Institute of Technology; Research Associate, Federal Reserve Bank of Boston; and Vice President and Economist, Federal Reserve Bank of Boston. The views expressed in this paper represent those of the authors, and not necessarily those of the Federal Reserve Bank of Boston or the Federal Reserve System. The authors’(More)
Sticky-price models with rational expectations fail to capture the inertia in U.S. inflation. Models with backward-looking expectations capture current inflation behavior, but are unlikely to fit other monetary regimes. This paper seeks to overcome these problems with a nearrational model of expectations. In the model, agents make univariate forecasts of(More)
This paper compares different methods for estimating forward‐looking output and inflation Euler equations and shows that weak identification can be an issue in conventional GMM estimation. The authors propose a GMM procedure that imposes the dynamic constraints implied by the forward‐looking relation on the instruments set. This " optimal instruments "(More)
A number of recent papers have explored monetary policy options, including inflation targeting and inflation forecast targeting (notably Svensson (1999a, 1999b, 2000)) and price level targeting (Wolman 2000, Batini and Yates 1999, Blinder 1999). Most papers explore “optimal” monetary policy in the context of a single model. However, a number of conclusions(More)