This study estimates a model of overlapping nominal price contracts over three distinct monetary policy regimes, testing the stability of the parameters in the model across regimes. Upon finding a model that is stable over the three subsamples, the model then holds for the most recent monetary regime is used to compute the optimal policy frontier - the efficient combinations of output and inflation variances - and compared to actual policy performance. The study then evaluates the robustness of policy conclusions to particulars of the specification, and discusses the general properties that are required of a model in order to produce a plausible estimate of the optimal policy frontier.
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Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number
94-2.
Length: Date of creation: 1994 Date of revision: Publication status: Published in Journal of Money, Credit and Banking 29, no. 2 (May 1997): 214-34. Handle: RePEc:fip:fedbwp:94-2
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