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Testing the Opportunistic Approach to Monetary Policy

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Author Info
Martin, Chris
Milas, Costas

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Abstract

The Opportunistic Approach to Monetary Policy is an influential but untested model of optimal monetary policy. We provide the first tests of the model, using US data from 1983Q1-2004Q1. Our results support the Opportunistic Approach. We find that policymakers respond to the gap between inflation and an intermediate target that reflects the recent history of inflation. We find that there is no response of interest rates to inflation when inflation is within 1% of the intermediate target but a strong response when inflation is further from the intermediate target.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 849.

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Date of creation: 24 Oct 2006
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Handle: RePEc:pra:mprapa:849

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E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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  1. Yunus Aksoy & Athanasios Orphanides & David Small & Volker Wieland & David Wilcox, 2005. "A Quantitative Exploration of the Opportunistic Approach to Disinflation," CFS Working Paper Series 2005/19, Center for Financial Studies. [Downloadable!]
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  2. Gerdesmeier, Dieter & Roffia, Barbara, 2005. "The relevance of real-time data in estimating reaction functions for the euro area," The North American Journal of Economics and Finance, Elsevier, vol. 16(3), pages 293-307, December. [Downloadable!] (restricted)
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  4. Ben S. Bernanke & Frederic S. Mishkin, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," NBER Working Papers 5893, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Rudebusch, Glenn D, 1998. "Do Measures of Monetary Policy in a VAR Make Sense?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 907-31, November.
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  6. Hamilton, James D, 2001. "A Parametric Approach to Flexible Nonlinear Inference," Econometrica, Econometric Society, vol. 69(3), pages 537-73, May.
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  7. Minford, Patrick & Srinivasan, Naveen, 2006. "Opportunistic monetary policy: An alternative rationalization," Journal of Economics and Business, Elsevier, vol. 58(5-6), pages 366-372. [Downloadable!] (restricted)
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  8. Eitrheim, Oyvind & Terasvirta, Timo, 1996. "Testing the adequacy of smooth transition autoregressive models," Journal of Econometrics, Elsevier, vol. 74(1), pages 59-75, September. [Downloadable!] (restricted)
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  9. Kevin Lee & Emi Mise & Kalvinder Shields & Tony Garratt, 2005. "Real time Representations of the Output Gap," Money Macro and Finance (MMF) Research Group Conference 2005 26, Money Macro and Finance Research Group. [Downloadable!]
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  10. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February. [Downloadable!] (restricted)
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  11. Dahl, Christian M. & Gonzalez-Rivera, Gloria, 2003. "Testing for neglected nonlinearity in regression models based on the theory of random fields," Journal of Econometrics, Elsevier, vol. 114(1), pages 141-164, May. [Downloadable!] (restricted)
  12. Lin, Chien-Fu Jeff & Terasvirta, Timo, 1994. "Testing the constancy of regression parameters against continuous structural change," Journal of Econometrics, Elsevier, vol. 62(2), pages 211-228, June. [Downloadable!] (restricted)
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  13. Christina Gerberding & Franz Seitz & Andreas Worms, 2005. "How the Bundesbank really conducted monetary policy," Computing in Economics and Finance 2005 60, Society for Computational Economics.
  14. Gerberding, Christina & Seitz, Franz & Worms, Andreas, 2005. "How the Bundesbank really conducted monetary policy," The North American Journal of Economics and Finance, Elsevier, vol. 16(3), pages 277-292, December. [Downloadable!] (restricted)
  15. Orphanides, Athanasios & Wilcox, David W, 2002. "The Opportunistic Approach to Disinflation," International Finance, Blackwell Publishing, vol. 5(1), pages 47-71, Spring. [Downloadable!] (restricted)
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