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Modest policy interventions

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  • Eric M. Leeper
  • Tao Zha

Abstract

This paper brings together identification and forecasting in a positive econometric analysis of policy. We contend that a broad range of important policy questions is consistent with the existing policy process and is not subject to Lucas's critique. We analyze the economics of "business as usual" and show that modest policy interventions, whose effects can be projected even if expectations are modeled as depending solely on past policy, can address routine questions like those raised at regular policy meetings. And modest interventions matter: they can shift the projected paths and probability distributions of macro variables in economically meaningful ways.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 99-22.

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Date of creation: 1999
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Handle: RePEc:fip:fedawp:99-22

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Keywords: Monetary policy ; Forecasting ; Vector autoregression ; Econometrics;

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