Nominal stability over two centuries

Swiss Journal of Economics and Statistics

Table 4 Probability of nominal stability (with alternative prior)

	CPI	WPI	DEFL	NGDP
(a) Nominal stability: \(P[\underline \tau < \tau _{t} < \overline \tau \|\mathbf {y}]\)
1804–1849: Competing currencies	0.46	0.65
1850–1873: Bimetallism	0.48	0.60	0.43	0.31
1874–1906: Gold Standard	0.53	0.62	0.49	0.49
1907–1944: World War period	0.59	0.64	0.49	0.43
1945–1973: Bretton Woods	0.40	0.65	0.15	0.04
1974–1999: Monetary targeting	0.20	0.72	0.21	0.27
2000–2017: Inflation targeting	0.75	0.73	0.70	0.53
(b) Overshooting: \(P[\tau _{t} > \overline \tau \|\mathbf {y} ]\)
1804–1849: Competing currencies	0.14	0.07
1850–1873: Bimetallism	0.18	0.09	0.06	0.04
1874–1906: Gold Standard	0.03	0.05	0.08	0.11
1907–1944: World War period	0.23	0.22	0.31	0.45
1945–1973: Bretton Woods	0.58	0.31	0.85	0.96
1974–1999: Monetary targeting	0.79	0.24	0.77	0.68
2000–2017: Inflation targeting	0.01	0.02	0.04	0.03
(c) Undershooting: \(P[ \tau _{t} <\underline \tau \|\mathbf {y}]\)
1804-1849: Competing currencies	0.41	0.28
1850–1873: Bimetallism	0.34	0.31	0.51	0.65
1874–1906: Gold Standard	0.44	0.33	0.44	0.41
1907–1944: World War period	0.18	0.15	0.20	0.12
1945–1973: Bretton Woods	0.02	0.04	0.00	0.00
1974–1999: Monetary targeting	0.00	0.04	0.03	0.06
2000–2017: Inflation targeting	0.24	0.25	0.26	0.43

Results based on an alternative prior specification discussed in the Appendix. The table shows the average posterior probability that the nominal trend is in line with today’s definition of nominal stability (\(P[\underline \tau < \tau _{t}< \overline \tau |\mathbf {y}]\)), and the probability of under- and overshooting the definition of nominal stability. This definition differs among the various indicators. For CPI inflation, the official target range amounts to [0%, 2%], whereas, for the other indicators, no official target ranges exist. To account for the fact that the indicators have different trend growth rates, the CPI target range is adapted by subtracting the average growth rate of the CPI and adding the average growth rate of the various indicators. To obtain a stability range that would be applied in practice, the numbers are rounded to half a percentage point for the WPI ([− 0.5%,1.5%]), the GDP deflator ([0%,2%]) and nominal GDP ([2.5%,4.5%])