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The monetary impulse measure as an explanation for Fed policy

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  • Peter Cornelius
  • Andreas Gottschling

Abstract

In response to the perceived instability of the relations between traditional monetary aggregates and nominal aggregate demand a number of nonstandard indicator variables have been developed to enable monetary policy to respond to, and counteract, incipient inflationary pressures before much inflation has developed. While the Federal Reserve Board is believed to pay increasing attention to such indicator variables, it is unclear which ones are perceived as particularly important. In this note, we present a variation of the monetary impulse measure (MIM), which was recently developed by McCallum and Hargraves (Staff studies for the World Economic Outlook, 1995). Modifying the original specification of the measure, we show that the new MIM's performance in explaining actual Fed decisions is clearly superior to other indicator variables, which are widely believed to guide US monetary policy.

Suggested Citation

  • Peter Cornelius & Andreas Gottschling, 1999. "The monetary impulse measure as an explanation for Fed policy," Applied Economics Letters, Taylor & Francis Journals, vol. 6(6), pages 353-358.
    • Handle: RePEc:taf:apeclt:v:6:y:1999:i:6:p:353-358
    DOI: 10.1080/135048599353069
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    References listed on IDEAS

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    1. McCallum, Bennett T., 1994. "A reconsideration of the uncovered interest parity relationship," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 105-132, February.
    2. John B. Taylor, 1995. "The Monetary Transmission Mechanism: An Empirical Framework," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 11-26, Fall.
    3. 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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