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How forward-looking is the Fed? Direct estimates from a `Calvo-type' rule

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Author Info
Vasco Gabriel (University of Surrey)
Paul Levine (University of Surey)
Christopher Spencer (University of Surrey)

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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 in?nite sum of future expected in?ation. Compared to conventional in?ation 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 Department of Economics, University of Surrey in its series Department of Economics Discussion Papers with number 0508.

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Length: 9 pages
Date of creation: Jun 2008
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Handle: RePEc:sur:surrec:0508

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Related research
Keywords: Calvo-type interest rules; In?ation Forecast Based rules; GMM; Indeterminacy.;

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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

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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.:
  1. Nicoletta Batini & Alejandro Justiniano & Paul Levine & Joseph Pearlman, 2004. "Robust Inflation-Forecast-Based Rules to Shield against Indeterminacy," Department of Economics Discussion Papers 0804, Department of Economics, University of Surrey. [Downloadable!]
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  2. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May. [Downloadable!] (restricted)
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  3. Whitney K. Newey & Richard J. Smith, 2004. "Higher Order Properties of Gmm and Generalized Empirical Likelihood Estimators," Econometrica, Econometric Society, vol. 72(1), pages 219-255, 01. [Downloadable!] (restricted)
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  4. Paul Levine & Peter McAdam & Joseph Pearlman, 2007. "Inflation-Forecast-Based Rules and Indeterminacy: A Puzzle and a Resolution," International Journal of Central Banking, International Journal of Central Banking, vol. 3(4), pages 77-110, December. [Downloadable!]
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  5. 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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  6. 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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  7. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June. [Downloadable!] (restricted)
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  8. Batini, Nicoletta & Nelson, Edward, 2001. "Optimal horizons for inflation targeting," Journal of Economic Dynamics and Control, Elsevier, vol. 25(6-7), pages 891-910, June. [Downloadable!] (restricted)
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  9. Marc Paolo Giannoni & Michael Woodford, 2003. "How forward-looking is optimal monetary policy?," Proceedings, Federal Reserve Bank of Cleveland, pages 1425-1483.
  10. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September. [Downloadable!] (restricted)
  11. Andrew Levin & Volker Wieland & John C. Williams, 2003. "The Performance of Forecast-Based Monetary Policy Rules Under Model Uncertainty," American Economic Review, American Economic Association, vol. 93(3), pages 622-645, June. [Downloadable!]
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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. Natália P. Monteiro & Paulo Bastos, 2009. "Managers and wage policies," NIPE Working Papers 2/2009, NIPE - Universidade do Minho. [Downloadable!]
  2. Fernando Alexandre & Miguel Portela & Carla Sá, 2008. "Admission conditions and graduates' employability," NIPE Working Papers 16/2008, NIPE - Universidade do Minho. [Downloadable!]
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