EconStor >
Cardiff University >
Cardiff Business School, Cardiff University >
Cardiff Economics Working Papers >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/65818
  
Title:US post-war monetary policy: What caused the Great Moderation? PDF Logo
Authors:Minford, Patrick
Ou, Zhirong
Issue Date:2010
Series/Report no.:Cardiff Economics Working Papers E2010/10
Abstract:Using indirect inference based on a VAR we confront US data from 1972 to 2007 with a standard New Keynesian model in which an optimal timeless policy is substituted for a Taylor rule. We find the model explains the data both for the Great Acceleration and the Great Moderation. The implication is that changing variances of shocks caused the reduction of volatility. Smaller Fed policy errors accounted for the fall in inflation volatility. Smaller supply shocks accounted for the fall in output volatility and smaller demand shocks for lower interest rate volatility. The same model with differing Taylor rules of the standard sorts cannot explain the data of either episode. But the model with timeless optimal policy could have generated data in which Taylor rule regressions could have been found, creating an illusion that monetary policy was following such rules.
Subjects:Great Moderation
Shocks
Monetary policy
New Keynesian model
Bootstrap
VAR
Indirect inference
Wald statistic
JEL:E32
E42
E52
E58
Document Type:Working Paper
Appears in Collections:Cardiff Economics Working Papers

Files in This Item:
File Description SizeFormat
641931352.pdf1.33 MBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/65818

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.