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Monetary policy, inflation and unemployment. In Defense of the Federal Reserve

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  • Nicolas Groshenny

    (Reserve Bank of New Zealand)

Abstract

a model-consistent measure of the unemployment gap. The historical decomposition of the unemployment gap emphasizes the expansionary effects of monetary policy shocks during each of the three recessions that characterize the period. In a counterfactual experiment where the estimated historical monetary policy shocks are turned off, the U.S. economy enters in deflation in 2002 and 2008. Moreover the unemployment gap becomes significantly more volatile. These results suggest that monetary policy shocks did contribute greatly to enhance macroeconomic stability during the last decade.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 676.

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Date of creation: 2010
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Handle: RePEc:red:sed010:676

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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  1. Luca Sala & Ulf Soderstrom & Antonella Trigari, 2010. "The Output Gap, the Labor Wedge, and the Dynamic Behavior of Hours," Working Papers 365, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. V.V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2008. "New Keynesian Models: Not Yet Useful for Policy Analysis," NBER Working Papers 14313, National Bureau of Economic Research, Inc.
  3. Yashiv, Eran, 2006. "Evaluating the Performance of the Search and Matching Model," IZA Discussion Papers 1931, Institute for the Study of Labor (IZA).
  4. Nicolas Groshenny, 2009. "Evaluating a monetary business cycle model with unemployment for the euro area," Working Paper Research 173, National Bank of Belgium.
  5. Frank Smets & Raf Wouters, 2007. "Shocks and Frictions in US Business Cycles : a Bayesian DSGE Approach," Working Paper Research 109, National Bank of Belgium.
  6. Jane Dokko & Brian Doyle & Michael T. Kiley & Jinill Kim & Shane Sherlund & Jae Sim & Skander Van den Heuvel, 2009. "Monetary policy and the housing bubble," Finance and Economics Discussion Series 2009-49, Board of Governors of the Federal Reserve System (U.S.).
  7. Matteo Iacoviello & Stefano Neri, 2007. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," Boston College Working Papers in Economics 659, Boston College Department of Economics, revised 23 Oct 2009.
  8. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  9. De Graeve, Ferre & Emiris, Marina & Wouters, Raf, 2009. "A structural decomposition of the US yield curve," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 545-559, May.
  10. John B. Taylor, 2007. "Housing and monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 463-476.
  11. Sala, Luca & Söderström, Ulf & Trigari, Antonella, 2008. "Monetary policy under uncertainty in an estimated model with labor market frictions," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 983-1006, July.
  12. Luca Sala & Antonella Trigari & Mark Gertler, 2007. "An Estimated Monetary DSGE Model with Unemployment and Staggered Nominal Wage Bargaining," 2007 Meeting Papers 353, Society for Economic Dynamics.
  13. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
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Cited by:
  1. Francesco Furlanetto & Nicolas Groshenny, 2012. "Matching efficiency and business cycle fluctuations," CAMA Working Papers 2012-34, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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