Ball and Sheridan (forthcoming) show that OECD countries with a history of high inflation before the 1990s have … subsequently experienced a larger degree of disinflation than countries with a history of low inflation. They label this process … ‘regression to the mean’, and argue that it explains why those OECD countries which adopted inflation targeting experienced larger …

. These include the distinction between the short and long-run trade-offs between inflation and unemployment, and the changing … level of the non-accelerating inflation rate of unemployment (NAIRU), particularly in the 1970s. We estimate Phillips curves … discussion of the changing role of the Phillips curve in the intellectual framework used to analyse inflation within the Reserve …

imply that both inflation and real variables must ‘jump’ in response to monetary policy (and other) shocks, in contrast to …

and, hence, of the appropriate inflation target. To rectify this, I include countercyclical fiscal policy within a large …-scale model of the US economy. I find that fiscal activism can substitute for a high inflation target. An increase in the … inflation target is not warranted, despite increased volatility of macroeconomic shocks, so long as fiscal policy behaves as it …

, since the adoption of inflation targeting, agents appear to be using a longer history of data to form their expectations …, consistent with greater stability of inflation. …