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The Fed and the New Economy

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Author Info
Laurence Ball
Robert Tchaidze

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Abstract

This paper seeks to understand the behavior of Greenspan's Federal Reserve in the late 1990s. Some authors suggest that the Fed followed a simple 'Taylor rule,' while others argue that it deviated from such a rule because it recognized that the 'New Economy' permitted an easing of policy. We find that a Taylor rule based on inflation and unemployment does break down in the late 1990s. However, the Fed's behavior appears stable once one accounts for the falling NAIRU of the period. A rule based on inflation and the deviation of unemployment from the NAIRU captures the Fed's behavior through the entire period from 1987 to 2000.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8785.

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Date of creation: Feb 2002
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Handle: RePEc:nbr:nberwo:8785

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Find related papers by JEL classification:
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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  1. Robert R Tchaidze, 2001. "Estimating Taylor Rules in a Real Time Setting," Economics Working Paper Archive 457, The Johns Hopkins University,Department of Economics. [Downloadable!]
  2. Gordon, Robert J, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter. [Downloadable!] (restricted)
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  3. Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1998-2), pages 297-346. [Downloadable!]
  4. Laurence Ball & Robert Moffitt, 2001. "Productivity Growth and the Phillips Curve," Economics Working Paper Archive 450, The Johns Hopkins University,Department of Economics.
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  5. Staiger, Douglas & Stock, James H & Watson, Mark W, 1997. "The NAIRU, Unemployment and Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 33-49, Winter. [Downloadable!] (restricted)
  6. John B. Taylor, 1998. "An Historical Analysis of Monetary Policy Rules," NBER Working Papers 6768, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December. [Downloadable!] (restricted)
  8. Douglas Staiger & James H. Stock & Mark W. Watson, 1996. "How Precise are Estimates of the Natural Rate of Unemployment?," NBER Working Papers 5477, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. N. Gregory Mankiw, 2001. "U.S. Monetary Policy During the 1990s," NBER Working Papers 8471, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, vol. 91(4), pages 964-985, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Cette, G. & Pfister, C., 2003. "The Challenges of the "New Economy" for Monetary Policy," Documents de Travail 100, Banque de France. [Downloadable!]
    Other versions:
  2. Anders Møller Christensen & Heino Bohn Nielsen, 2005. "US Monetary Police 1988-2004: An Empirical Analysis," FRU Working Papers 2005/01, University of Copenhagen. Department of Economics. Finance Research Unit. [Downloadable!]
  3. Thomas Lubik & Frank Schorfheide, 2003. "Do Central Banks Respond to Exchange Rate Movements? A Structural Investigation," Economics Working Paper Archive 505, The Johns Hopkins University,Department of Economics. [Downloadable!]
    Other versions:
  4. Cette, G. & Mairesse, J. & Kocoglu, Y., 2004. "ICT Diffusion and Potential Output Growth," Documents de Travail 112, Banque de France. [Downloadable!]
    Other versions:
  5. Páez-Farrell, Juan, 2007. "Monetary Policy Rules in Theory and in Practice: Evidence from the UK and the US," Cardiff Economics Working Papers E2007/13, Cardiff University, Cardiff Business School, Economics Section. [Downloadable!]
    Other versions:
  6. Robert Tchaidze & Alina Carare, 2004. "The Use and Abuse of Taylor Rules: How precisely can we estimate them?," Econometric Society 2004 Latin American Meetings 132, Econometric Society. [Downloadable!]
    Other versions:
  7. Athanasios Orphanides & John C. Williams, 2002. "Robust monetary policy rules with unknown natural rates," Working Papers in Applied Economic Theory 2003-01, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  8. Alfonso Palacio-Vera, 2006. "On Lower-bound Traps: A Framework for the Analysis of Monetary Policy in the ÒAgeÓ of Central Banks," Economics Working Paper Archive wp_478, Levy Economics Institute, The. [Downloadable!]
  9. Alan S. Blinder & Ricardo Reis, 2005. "Understanding the Greenspan standard," Proceedings, Federal Reserve Bank of Kansas City, issue Aug, pages 11-96. [Downloadable!]
    Other versions:
  10. Temple, Jonathan, 2002. "An Assessment of the New Economy," CEPR Discussion Papers 3597, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  11. Antonio Forte & Giovanni Pesce, 2009. "The International Financial Crisis: an Expert Survey," series 0024, Dipartimento di Scienze Economiche - Università di Bari, revised Apr 2009. [Downloadable!]
  12. Felipe Jaque S. & Alfredo Pistelli M., 2008. "Metodologías para la Estimación de Expectativas sobre Tasas de Política Monetaria," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 11(1), pages 131-136, April. [Downloadable!]
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