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The Fed and the New Economy

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Author Info

  • Laurence Ball
  • Robert R. Tchaidze

Abstract

This paper seeks to understand the behavior of Greenspan’s Federal Reserve in the late 1990s Some authors suggest that the Fed followed a simple Taylor rule while others argue that it deviated from such a rule because it recognized that the New Economy permitted an easing of policy We find that a Taylor rule based on inflation and unemployment does break down in the late 1990s However the Fed’s behavior appears stable once one accounts for the falling NAIRU of the period A rule based on inflation and the deviation of unemployment from the NAIRU captures the Fed’s behavior through the entire period from 1987 to 2000

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282802320189096
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 92 (2002)
Issue (Month): 2 (May)
Pages: 108-114

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Handle: RePEc:aea:aecrev:v:92:y:2002:i:2:p:108-114

Note: DOI: 10.1257/000282802320189096
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References

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  1. Douglas Staiger & James H. Stock & Mark W. Watson, 1997. "The NAIRU, Unemployment and Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 33-49, Winter.
  2. N. Gregory Mankiw, 2001. "U. S. Monetary Policy During the 1990s," Harvard Institute of Economic Research Working Papers 1927, Harvard - Institute of Economic Research.
  3. Douglas O. Staiger & James H. Stock & Mark W. Watson, 1997. "How Precise Are Estimates of the Natural Rate of Unemployment?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 195-246 National Bureau of Economic Research, Inc.
  4. Laurence Ball & Robert Moffitt, 2001. "Productivity Growth and the Phillips Curve," NBER Working Papers 8421, National Bureau of Economic Research, Inc.
  5. Robert J. Gordon, 1996. "The Time-Varying NAIRU and its Implications for Economic Policy," NBER Working Papers 5735, National Bureau of Economic Research, Inc.
  6. Robert R Tchaidze, 2001. "Estimating Taylor Rules in a Real Time Setting," Economics Working Paper Archive 457, The Johns Hopkins University,Department of Economics.
  7. Athanasios Orphanides, 1998. "Monetary policy rules based on real-time data," Finance and Economics Discussion Series 1998-03, Board of Governors of the Federal Reserve System (U.S.).
  8. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters, in: Monetary Policy Rules, pages 319-348 National Bureau of Economic Research, Inc.
  9. Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 297-346.
  10. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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