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New economy-new policy rules Author info | Abstract | Publisher info | Download info | Related research | Statistics James B. Bullard
Eric Schaling
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The U.S. economy appears to have experienced a pronounced shift toward higher productivity over the last five years or so. We wish to understand the implications of such shifts for the structure of optimal monetary policy rules in simple dynamic economies. Accordingly, we begin with a standard economy in which a version of the Taylor rule constitutes the optimal monetary policy for a given inflation target and a given level of productivity. We augment this model with regime switching in productivity and calculate the optimal monetary policy rule in the altered environment. We find that, in the altered environment, a rule that incorporates leading indicators about regimes significantly outperforms the Taylor rule. We use this result to comment on the “new economy” events of the 1990s and the “stagflation” events of the 1970s from the perspective of our model.
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Article provided by Federal Reserve Bank of St. Louis in its journal Review .
Volume (Year): (2001)
Issue (Month): May ()
Pages: 57-66
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Handle: RePEc:fip:fedlrv:y:2001:i:may:p:57-66:n:v.83no.5Contact details of provider: Postal: P.O. Box 442, St. Louis, MO 63166 Fax: (314)444-8753 Web page: http://www.stlouisfed.org/ More information through EDIRC
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Keywords: Monetary policy ; Economic conditions - United States ; Other versions of this item:
Paper Bullard, J. & Schaling, E., 2000.
"New economy : new policy rules? ,"
Discussion Paper
72, Tilburg University, Center for Economic Research.
[Downloadable!] James Bullard & Eric Schaling, 2000.
"New economy - new policy rules? ,"
Working Papers
2000-019, Federal Reserve Bank of St. Louis.
[Downloadable!] Eric Schaling, James Bullard, 2001.
"New economy : new policy rules? ,"
Computing in Economics and Finance 2001
53, Society for Computational Economics.
[Downloadable!] References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Richard Clarida & Jordi Gali & Mark Gertler, 1999.
"The Science of Monetary Policy: A New Keynesian Perspective ,"
Journal of Economic Literature ,
American Economic Association, vol. 37(4), pages 1661-1707, December.
[Downloadable!] (restricted)
Other versions:
Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999.
"The Science of Monetary Policy: A New Keynesian Perspective ,"
CEPR Discussion Papers
2139, C.E.P.R. Discussion Papers.
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"The Science of Monetary Policy: A New Keynesian Perspective ,"
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99-13, C.V. Starr Center for Applied Economics, New York University.
[Downloadable!] Richard Clarida & Jordi Galí & Mark Gertler, 1997.
"The Science of Monetary Policy: A New Keynesian Perspective ,"
Economics Working Papers
356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
[Downloadable!] Richard Clarida & Jordi Gali & Mark Gertler, 1999.
"The Science of Monetary Policy: A New Keynesian Perspective ,"
NBER Working Papers
7147, National Bureau of Economic Research, Inc.
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"A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle ,"
Econometrica ,
Econometric Society, vol. 57(2), pages 357-84, March.
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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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Svensson, Lars E. O., 1997.
"Inflation forecast targeting: Implementing and monitoring inflation targets ,"
European Economic Review ,
Elsevier, vol. 41(6), pages 1111-1146, June.
[Downloadable!] (restricted)
Other versions:
Svensson, L-E-O, 1996.
"Inflation Forecast Targeting : Implementaing and Monitoring Inflation Targets ,"
Papers
615, Stockholm - International Economic Studies.
Svensson, Lars E.O., 1997.
"Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets ,"
Seminar Papers
615, Stockholm University, Institute for International Economic Studies.
[Downloadable!] Svensson, Lars E O, 1996.
"Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets ,"
CEPR Discussion Papers
1511, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Lars E. O. Svensson, 1997.
"Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets ,"
NBER Working Papers
5797, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted) Lars E O Svensson, .
"Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets ,"
Bank of England working papers
56, Bank of England.
Full
references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Eijffinger, S.C.W. & Tesfaselassie, M. & Schaling, E., 2004.
"Heterogeneous information about the term structure of interest rates, least-squares learning and optimal interest rate rules for inflation forecast targeting ,"
Discussion Paper
14, Tilburg University, Center for Economic Research.
[Downloadable!]
Other versions: Schaling, E., 2003.
"Learning, inflation reduction and optimal monetary policy ,"
Discussion Paper
74, Tilburg University, Center for Economic Research.
[Downloadable!]
Jan Marc Berk, 2002.
"New Economy, Old Central Banks? ,"
Tinbergen Institute Discussion Papers
02-087/2, Tinbergen Institute, revised 01 Aug 2002.
[Downloadable!]
Other versions: Schaling , Eric & Eijffinger , Sylvester & Tesfaselassie , Mewael, 2004.
"Heterogeneous information about the term structure, least-squares learning and optimal rules for inflation targeting ,"
Research Discussion Papers
23/2004, Bank of Finland.
[Downloadable!]
Haydar Akyazi & Seyfettin Artan, 2006.
"Reflections of the New Economy on the Monetary Policy and Central Banking ,"
Papers of the Annual IUE-SUNY Cortland Conference in Economics ,
in: Proceedings of the Conference on Human and Economic Resources, pages 373-387
Izmir University of Economics.
[Downloadable!]
Other versions: James Bullard & Stefano Eusepi, 2005.
"Did the Great Inflation Occur Despite Policymaker Commitment to a Taylor Rule? ,"
Review of Economic Dynamics ,
Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 324-359, April.
[Downloadable!] (restricted)
Other versions: Eijffinger, Sylvester C W & Schaling, Eric & Tesfaselassie, Mewael F., 2006.
"Learning About the Term Structure and Optimal Rules for Inflation Targeting ,"
CEPR Discussion Papers
5896, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted)
Other versions:
Tesfaselassie, Mewael F. & Schaling, Eric & Eijffinger, Sylvester, 2006.
"Learning about the term structure and optimal rules for inflation targeting ,"
Discussion Paper
88, Tilburg University, Center for Economic Research.
[Downloadable!] Tesfaselassie, M.F. & Schaling, E. & Eijffinger, S.C.W., 2006.
"Learning About the Term Structure and Optimal Rules for Inflation Targeting ,"
Research Paper
ERS-2006-058-F&A Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
[Downloadable!] Fabrizio Zampolli, .
"Optimal monetary policy in a regime-switching economy: the response to abrupt shifts in exchange rate dynamics ,"
Bank of England working papers
297, Bank of England.
[Downloadable!]
Eijffinger, Sylvester C W & Schaling, Eric & Tesfaselassie, Mewael F., 2004.
"Heterogenous Information About the Term Structure of Interest Rates, Least-Squares Learning and Optimal Interest Rate Rules ,"
CEPR Discussion Papers
4279, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted)
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