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Monetary Policy in the Greenspan Era: A Time Series Analysis of Rules vs. Discretion

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  • Anders Møller Christensen
  • Heino Bohn Nielsen
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    Abstract

    Relationships between the Federal funds rate, unemployment, inflation and the long-term bond rate are investigated with cointegration techniques. We find a stable long-term relationship between the Federal funds rate, unemployment and the bond rate. This relationship is interpretable as a policy target because deviations are corrected via the Federal funds rate. Deviations of the actual Federal funds rate from the estimated target give simple indications of discretionary monetary policy, and the larger deviations relate to special episodes outside the current information set. A more traditional Taylor-type target, where inflation appears instead of the bond rate, does not seem congruent with the data. Copyright (c) Blackwell Publishing Ltd and the Department of Economics, University of Oxford, 2008.

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    Bibliographic Info

    Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics and Statistics.

    Volume (Year): 71 (2009)
    Issue (Month): 1 (02)
    Pages: 69-89

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    Handle: RePEc:bla:obuest:v:71:y:2009:i:1:p:69-89

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    Cited by:
    1. J. James Reade & Ulrich Volz, 2009. "Leader of the Pack? German Monetary Dominance in Europe Prior to EMU," Economics Series Working Papers 419, University of Oxford, Department of Economics.
    2. J James Reade & Ulrich Volz, 2010. "Too Much to Lose, or More to Gain? Should Sweden Join the Euro?," Discussion Papers, Department of Economics, University of Birmingham 10-13, Department of Economics, University of Birmingham.
    3. Macchiarelli, Corrado, 2011. "Bond market co-movements, expected inflation and the equilibrium real exchange rate," Working Paper Series, European Central Bank 1405, European Central Bank.
    4. Vanessa Berenguer Rico & Jesús Gonzalo, 2013. "Co-summability from linear to non-linear cointegration," Economics Working Papers we1312, Universidad Carlos III, Departamento de Economía.
    5. Choo, Han Gwang & Kurita, Takamitsu, 2011. "An empirical investigation of monetary interaction in the Korean economy," International Review of Economics & Finance, Elsevier, Elsevier, vol. 20(2), pages 267-280, April.
    6. Bec, Frédérique & Gollier, Christian, 2009. "Cyclicality and Term Structure of Value-at-Risk in Europe," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 587, Institut d'Économie Industrielle (IDEI), Toulouse.

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