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dc.contributor.authorKiefer, Daviden_US
dc.date.accessioned2011-04-13en_US
dc.date.accessioned2012-09-28T12:40:31Z-
dc.date.available2012-09-28T12:40:31Z-
dc.date.issued2011en_US
dc.identifier.urihttp://hdl.handle.net/10419/64479-
dc.description.abstractCarlin and Soskice (2005) advocate a 3-equation model of stabilization policy. One equation is a monetary reaction rule MR derived by assuming that governments have performance objectives, but are constrained by a Phillips curve PC. Central banks attempt to implement these objectives by setting interest rates along an IS curve. They label this the IS-PC-MR model. Observing that governments have more tools than just the interest rate, we drop the IS equation, simplifying their model to 2 equations. Adding a random walk model of the unobserved potential growth, we develop their PC-MR model into a state space specification of the short-run political economy. This is an appropriate econometric method because it incorporates recursive forecasts of unobservable state variables based on contemporaneous information measured with real-time data. Our results are generally consistent with US economic history. One qualification is that governments are more likely to target growth rates than output gaps. Another is that policy affects outcomes after a single lag. This assumption fits the data better than an alternative double-lag timing: one lag for output, plus a second for inflation has been proposed. We also infer that inflation expectations are more likely to be backward rather than forward looking.en_US
dc.language.isoengen_US
dc.publisherUniv. of Utah, Dep. of Economics Salt Lake City, Utahen_US
dc.relation.ispartofseriesWorking Paper, University of Utah, Department of Economics 2011-03en_US
dc.subject.jelE3en_US
dc.subject.jelE6en_US
dc.subject.ddc330en_US
dc.subject.keywordnew Keynesian stabilizationen_US
dc.subject.keywordpolicy targetsen_US
dc.subject.keywordmicrofoundationsen_US
dc.subject.keywordreal-time dataen_US
dc.titleTargets, policy lags and sticky prices in a two-equation model of US stabilization policyen_US
dc.typeWorking Paperen_US
dc.identifier.ppn656252456en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen_US
Appears in Collections:Department of Economics Working Paper Series, University of Utah

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