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The Greenbook and U.S. Monetary Policy

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  • Robert Tchaidze
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    Abstract

    Although 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 Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/213.

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    Length: 23
    Date of creation: 01 Nov 2004
    Date of revision:
    Handle: RePEc:imf:imfwpa:04/213

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    1. John C. Williams, 1999. "Simple rules for monetary policy," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1999-12, Board of Governors of the Federal Reserve System (U.S.).
    2. Svensson, L-E-O, 1996. "Inflation Forecast Targeting : Implementaing and Monitoring Inflation Targets," Papers, Stockholm - International Economic Studies 615, Stockholm - International Economic Studies.
    3. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, American Economic Association, vol. 91(4), pages 964-985, September.
    4. John M. Roberts, 1994. "Is inflation sticky?," Working Paper Series / Economic Activity Section, Board of Governors of the Federal Reserve System (U.S.) 152, Board of Governors of the Federal Reserve System (U.S.).
    5. Laurence Ball, 1997. "Efficient Rules for Monetary Policy," NBER Working Papers 5952, National Bureau of Economic Research, Inc.
    6. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 39(1), pages 195-214, December.
    7. Glenn D. Rudebusch, 1999. "Is the Fed too timid? Monetary policy in an uncertain world," Working Papers in Applied Economic Theory, Federal Reserve Bank of San Francisco 99-05, Federal Reserve Bank of San Francisco.
    8. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
    9. Robert R Tchaidze, 2001. "Estimating Taylor Rules in a Real Time Setting," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 457, The Johns Hopkins University,Department of Economics.
    10. David H. Romer & Christina D. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, American Economic Association, vol. 90(3), pages 429-457, June.
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    Cited by:
    1. Manfred Esquivel Monge & Mario Alfredo Rojas Sánchez, 2008. "Estimación del producto potencial para Costa Rica: período 1991-2006," Investigación Conjunta - español, , , edition 1, volume 1, number 1-02 edited by Centro de Estudios Monetarios Latinoamericanos (CEMLA), December.
    2. Kishor, N. Kundan & Newiak, Monique, 2009. "The Instability in the Monetary Policy Reaction Function and the Estimation of Monetary Policy Shocks," MPRA Paper 17643, University Library of Munich, Germany.

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