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Testing The Opportunistic Approach To Monetary Policy

  • CHRISTOPHER MARTIN
  • COSTAS MILAS

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 to 2004Q1. Our results support the opportunistic approach. We find that policy-makers 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 per cent of the intermediate target but a strong response when inflation is further from the intermediate target. Copyright � 2010 The Authors. Journal compilation � 2010 Blackwell Publishing Ltd and The University of Manchester.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9957.2009.02133.x
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Article provided by University of Manchester in its journal The Manchester School.

Volume (Year): 78 (2010)
Issue (Month): 2 (03)
Pages: 110-125

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Handle: RePEc:bla:manchs:v:78:y:2010:i:2:p:110-125
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