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Monetary Policy and Key Unobservables: Evidence from Large Industrial and Selected Inflation-Targeting Countries

In: Monetary Policy under Uncertainty and Learning

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  • Klaus Schmidt-Hebbel

    (Pontificia Universidad Católica de Chile)

  • Carl E. Walsh

    (University of California-Santa Cruz)

Abstract

Among the variables that play critical roles in the design of monetary policy, several are unobservable. These include such key variables as the neutral real rate of interest, the output gap, and the natural rate of unemployment. While individual central banks have undertaken efforts to estimate these unobservables, the approaches have generally been country specific and have not provided either systematic estimation or comparison across countries. We adopt a common estimation approach, applied to a parsimonious monetary-policy model, to provide consistent estimates of key unobservables for the U.S., the Eurozone, and Japan, and several inflation-targeting countries: Australia, Canada, Chile, New Zealand, Norway, Sweden, and the U.K. Doing so allows us to obtain comparable measures of unobservables across a range of countries. We exploit our estimates to investigate issues of commonalities and convergence across countries in these key but unobservable variables.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

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This chapter was published in: Klaus Schmidt-Hebbel & Carl E. Walsh & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.) Monetary Policy under Uncertainty and Learning, , chapter 9, pages 285-370, 2009.

This item is provided by Central Bank of Chile in its series Central Banking, Analysis, and Economic Policies Book Series with number v13c09pp285-370.

Handle: RePEc:chb:bcchsb:v13c09pp285-370

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  1. Rodrigo Fuentes & Fabián Gredig & Mauricio Larraín, 2008. "La brecha de producto en Chile: medición y evaluación," Investigación Conjunta - español, Centro de Estudios Monetarios Latinoamericanos, CEMLA, edition 1, volume 1, number 1-03 edited by Centro de Estudios Monetarios Latinoamericanos (CEMLA), March.
  2. Olivier Blanchard & Jordi Gali, 2005. "Real Wage Rigidities and the New Keynesian Model," NBER Working Papers 11806, National Bureau of Economic Research, Inc.
  3. Basistha, Arabinda & Nelson, Charles R., 2007. "New measures of the output gap based on the forward-looking new Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 498-511, March.
  4. Christopher J. Erceg & Andrew T. Levin, 2001. "Imperfect credibility and inflation persistence," Finance and Economics Discussion Series 2001-45, Board of Governors of the Federal Reserve System (U.S.).
  5. Nils Björksten & Özer Karagedikli, 2003. "Neutral real interest rates revisited," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 66, pages 11, September.
  6. Hamilton, James D., 1986. "A standard error for the estimated state vector of a state-space model," Journal of Econometrics, Elsevier, vol. 33(3), pages 387-397, December.
  7. Kuttner, Kenneth N, 1994. "Estimating Potential Output as a Latent Variable," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 361-68, July.
  8. Athanasios Orphanides, 2002. "Monetary-Policy Rules and the Great Inflation," American Economic Review, American Economic Association, vol. 92(2), pages 115-120, May.
  9. Jorge E. Restrepo, 2008. "Estimaciones de NAIRU para Chile," Investigación Conjunta - español, Centro de Estudios Monetarios Latinoamericanos, CEMLA, edition 1, volume 1, number 1-16 edited by Centro de Estudios Monetarios Latinoamericanos (CEMLA), March.
  10. Athanasios Orphanides & Simon van Norden, 2002. "The Unreliability of Output-Gap Estimates in Real Time," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 569-583, November.
  11. Carl Walsh, 2003. "Speed Limit Policies: The Output Gap and Optimal Monetary Policy," American Economic Review, American Economic Association, vol. 93(1), pages 265-278, March.
  12. Stephen Murchison & Andrew Rennison, 2006. "ToTEM: The Bank of Canada's New Quarterly Projection Model," Technical Reports 97, Bank of Canada.
  13. Julien Garnier & Bjørn-Roger Wilhelmsen, 2009. "The natural rate of interest and the output gap in the euro area: a joint estimation," Empirical Economics, Springer, vol. 36(2), pages 297-319, May.
  14. Bruce E. Hansen, 1999. "The Grid Bootstrap And The Autoregressive Model," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 594-607, November.
  15. J. Rodrigo Fuentes & Fabián Gredig, 2008. "La tasa de interés neutral: estimaciones para Chile," Investigación Conjunta - español, Centro de Estudios Monetarios Latinoamericanos, CEMLA, edition 1, volume 1, number 1-08 edited by Centro de Estudios Monetarios Latinoamericanos (CEMLA), March.
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