How forward-looking is the Fed? Direct estimates from a ‘Calvo-type’ rule

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How forward-looking is the Fed? Direct estimates from a ‘Calvo-type’ rule

Author Info

Vasco J. Gabriel () (Department of Economics, University of Surrey and Universidade do Minho - NIPE)
Paul Levine () (Department of Economics, University of Surrey)
Christopher Spencer () (Department of Economics, Loughborough University)

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Abstract

We estimate an alternative type of monetary policy rule, termed Calvo rule, according to which the central bank is assumed to target a discounted infinite sum of future expected inflation. Compared to conventional inflation forecast-based rules, which are typically of the Taylor-type with discrete forward looking horizons, this class of rule is less prone to the problem of indeterminacy. Parameter estimates obtained from GMM estimation provide support for Calvo-type rules, suggesting that the Federal Reserve targeted a mean forward horizon of between 4 and 8 quarters.

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Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 09/2008.

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Date of creation: 2008
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Handle: RePEc:nip:nipewp:09/2008

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Article
- Gabriel, Vasco J. & Levine, Paul & Spencer, Christopher, 2009. "How forward-looking is the Fed? Direct estimates from a [`]Calvo-type' rule," Economics Letters, Elsevier, vol. 104(2), pages 92-95, August. [Downloadable!] (restricted)
Paper
- Vasco Gabriel & Paul Levine & Christopher Spencer, 2008. "How forward-looking is the Fed? Direct estimates from a `Calvo-type' rule," Department of Economics Discussion Papers 0508, Department of Economics, University of Surrey. [Downloadable!]

Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-12-07 (All new papers)
NEP-CBA-2008-12-07 (Central Banking)
NEP-MAC-2008-12-07 (Macroeconomics)
NEP-MON-2008-12-07 (Monetary Economics)

References listed on IDEAS
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.:

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Other versions:
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Other versions:
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Full references

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.)

Natália P. Monteiro & Paulo Bastos, 2009. "Managers and wage policies," NIPE Working Papers 2/2009, NIPE - Universidade do Minho. [Downloadable!]
Fernando Alexandre & Miguel Portela & Carla Sá, 2008. "Admission conditions and graduates' employability," NIPE Working Papers 16/2008, NIPE - Universidade do Minho. [Downloadable!]
Other versions:
- Alexandre, Fernando & Portela, Miguel & Sá, Carla, 2008. "Admission Conditions and Graduates' Employability," IZA Discussion Papers 3530, Institute for the Study of Labor (IZA). [Downloadable!]

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