Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/212454
Authors: 
Haque, Qazi
Groshenny, Nicolas
Weder, Mark
Year of Publication: 
2019
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 20/2019
Abstract: 
The paper re-examines whether the Federal Reserve's monetary policy was a source of instability during the Great Inflation by estimating a sticky-price model with positive trend inflation, commodity price shocks and sluggish real wages. Our estimation provides empirical evidence for substantial wage-rigidity and finds that the Federal Reserve responded aggressively to inflation but negligibly to the output gap. In the presence of non-trivial real imperfections and well-identified commodity price-shocks, U.S. data prefers a determinate version of the New Keynesian model: monetary policy-induced indeterminacy and sunspots were not causes of macroeconomic instability during the pre-Volcker era.
JEL: 
E32
E52
E58
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-295-2
Document Type: 
Working Paper

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