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Empirical Analysis of Policy Interventions

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  • Eric M. Leeper
  • Tao Zha

Abstract

We construct linear projections of macro variables conditional on hypothetical paths of monetary policy, using as an example an identified VAR model. Hypothetical policies are restricted to ones where both the policy intervention and its impacts are consistent with history -- otherwise the linear projections are likely to be unreliable. We use the approach to interpret Federal Reserve decisions, modeling their frequent reassessment in light of new information about the tradeoffs policymakers face. The interventions we consider matter: they can shift projected paths and probability distributions of macro variables in economically meaningful ways.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9063.

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Date of creation: Jul 2002
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Publication status: published as Eric Leeper & Tao Zha, 2002. "Empirical analysis of policy interventions," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
Handle: RePEc:nbr:nberwo:9063

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  1. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
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  7. John C. Robertson & Ellis W. Tallman, 1999. "Improving forecasts of the federal funds rate in a policy model," Working Paper 99-3, Federal Reserve Bank of Atlanta.
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Citations

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Cited by:
  1. Mesonnier, Jean-Stephane & Renne, Jean-Paul, 2007. "A time-varying "natural" rate of interest for the euro area," European Economic Review, Elsevier, vol. 51(7), pages 1768-1784, October.
  2. Leeper, Eric M. & Zha, Tao, 2003. "Modest policy interventions," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1673-1700, November.
  3. Rudebusch, Glenn D, 2005. "Assessing the Lucas Critique in Monetary Policy Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 245-72, April.
  4. Humala, Alberto & Rodríguez, Gabriel, 2009. "Estimation of a Time Varying Natural Interest Rate for Peru," Working Papers 2009-009, Banco Central de Reserva del Perú.
  5. Kociecki, Andrzej, 2013. "Bayesian Approach and Identification," MPRA Paper 46538, University Library of Munich, Germany.
  6. Michael S. Hanson, 2006. "Varying Monetary Policy Regimes: A Vector Autoregressive Investigation," Wesleyan Economics Working Papers 2006-003, Wesleyan University, Department of Economics.
  7. Mésonnier, J-S. & Renne, J-P., 2004. "A Time-Varying Natural Rate for the Euro Area," Working papers 115, Banque de France.
  8. SOOREEA, Rajeev, 2007. "Are Taylor-Based Monetary Policy Rules Forward-Looking?. An Investigation Using Superexogeneity Tests," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 7(2), pages 87-94.
  9. Timothy Cogley & Thomas J. Sargent, 2005. "Drift and Volatilities: Monetary Policies and Outcomes in the Post WWII U.S," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 262-302, April.
  10. Christopher Sims & Tao Zha, 2002. "Macroeconomic switching," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  11. Harald Uhlig, 2001. "Did the Fed Surprise the Markets in 2001? A Case Study for VARs with Sign Restrictions," CESifo Working Paper Series 629, CESifo Group Munich.
  12. Eric Leeper, 2003. "An "Inflation Reports" Report," NBER Working Papers 10089, National Bureau of Economic Research, Inc.
  13. Voss, G.M. & Willard, L.B., 2009. "Monetary policy and the exchange rate: Evidence from a two-country model," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 708-720, December.

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