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US inflation and inflation uncertainty over 200 years

Published online by Cambridge University Press:  02 July 2018

Don Bredin  and
Stilianos Fountas
Don Bredin*
Affiliation:
University College Dublin
Stilianos Fountas
Affiliation:
University of Macedonia and Rimini Centre for Economic Analysis
*
D. Bredin (corresponding author), Graduate School of Business, University College Dublin, Carysfort Avenue, Blackrock, Dublin, Ireland; email: don.bredin@ucd.ie.
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Abstract

This article uses historical US inflation data covering over two centuries to examine the impact of the establishment of the US Federal Reserve on average US inflation and inflation uncertainty. We find that the founding of the Fed is associated with higher average US inflation and lower inflation uncertainty. Critically, these results are not driven by the post-1980 period, where the Fed policy is characterised by the dual mandate. Other important results are that the gold standard period is associated with both lower inflation and inflation uncertainty, and that banking and stock market crises are a positive determinant of inflation uncertainty and perhaps inflation. World Wars I and II and the US Civil War are associated with both higher inflation and higher inflation uncertainty. In addition, we find that the central bank has responded to increasing inflation uncertainty in a stabilising manner in support of the Holland hypothesis.

Keywords

asymmetric GARCHrecessioninflation uncertainty

JEL classification

C22: Time-Series Models • Dynamic Quantile Regressions • Dynamic Treatment Effect Models • Diffusion Processes E31: Price Level • Inflation • Deflation
Type
Articles
Information
Financial History Review , Volume 25 , Issue 2 , August 2018 , pp. 141 - 159
Copyright
Copyright © European Association for Banking and Financial History e.V. 2018 

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Footnotes

We are grateful to the editor and anonymous referees, Cormac O'Grada, Kevin O'Rourke and John Turner for their very helpful comments on earlier drafts. The authors would also like to thank participants of the Rimini Conference in Economics and Finance (2014), the ASSET annual conference (Aix-en-Provence, 2014) and a departmental seminar at the University of Stirling for helpful comments and suggestions. The usual disclaimer applies. Bredin acknowledges the support of Science Foundation Ireland under grant number 16/SPP/3347.

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