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Monetary policy when the spyglass is smudged

Author

Listed:
  • Early Elias
  • Helen Irvin
  • Òscar Jordà

Abstract

An accurate measure of economic slack is key to properly calibrating monetary policy. Two traditional gauges of slack have become harder to interpret since the Great Recession: the gap between output and its potential level, and the deviation of the unemployment rate from its natural rate. As a consequence, conventional policy rules based on these measures of slack generate wide-ranging policy rate recommendations. This variability highlights one of the challenges policymakers currently face.

Suggested Citation

  • Early Elias & Helen Irvin & Òscar Jordà, 2014. "Monetary policy when the spyglass is smudged," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfel:00037
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    File URL: http://www.frbsf.org/economic-research/publications/economic-letter/2014/november/unemployment-monetary-policy-economic-growth-Taylor-rule/el2014-35.pdf
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    References listed on IDEAS

    as
    1. Canyon Bosler & Mary C. Daly & Fernanda Nechio, 2014. "Mixed signals: labor markets and monetary policy," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    2. Mary C. Daly & John G. Fernald & Òscar Jordà & Fernanda Nechio, 2014. "Interpreting deviations from Okun’s Law," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    3. Taylor, John B., 1999. "The robustness and efficiency of monetary policy rules as guidelines for interest rate setting by the European central bank," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 655-679, June.
    4. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, July.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. A Monetary Policy Framework for the Next Recession
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2017-12-11 19:02:11

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    Cited by:

    1. Gomes, Sandra & Jacquinot, Pascal & Lozej, Matija, 2023. "A single monetary policy for heterogeneous labour markets: the case of the euro area," Research Technical Papers 3/RT/23, Central Bank of Ireland.
    2. Mikhail V. Oet & Kalle Lyytinen, 2017. "Does Financial Stability Matter to the Fed in Setting US Monetary Policy?," Review of Finance, European Finance Association, vol. 21(1), pages 389-432.

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