The Greenbook and U.S. Monetary Policy
AbstractAlthough very attractive both theoretically and empirically, Taylor rules imply mechanical responses by the policy variable (interest rate) to fundamental ones (inflation and output gap). This study looks for empirical evidence of a more sophisticated monetary policy, one which takes into account expected future developments. An important piece of information added is the "Greenbook" forecast series, calculated by the Federal Reserve staff and which allow evaluation of expected inflation shocks. These shocks are significant in the estimated Taylor rule, confirming that policymaking is forward looking. This paper also demonstrates that a simple Taylor rule may be a misspecification if policymakers have in mind a timevarying inflation target.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 04/213.
Date of creation: 01 Nov 2004
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-22 (All new papers)
- NEP-CBA-2005-10-22 (Central Banking)
- NEP-FOR-2005-10-22 (Forecasting)
- NEP-MAC-2005-10-22 (Macroeconomics)
- NEP-MON-2005-10-22 (Monetary Economics)
- NEP-PBE-2005-10-26 (Public Economics)
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