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

  • Gabriel, Vasco J.
  • Levine, Paul
  • Spencer, Christopher

We estimate an alternative type of monetary policy rule according to which the central bank targets a discounted infinite sum of expected inflation and output gaps. Empirical results suggest that the Fed has a mean forward horizon of 4 to 8 quarters.

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File URL: http://www.sciencedirect.com/science/article/B6V84-4W4CWHG-2/2/b0b6a22dec36897fba91a16f8ed8a3ca
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 104 (2009)
Issue (Month): 2 (August)
Pages: 92-95

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Handle: RePEc:eee:ecolet:v:104:y:2009:i:2:p:92-95
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. Nicoletta Batini & Edward Nelson, 1999. "Optimal Horizons for Inflation Targeting," Computing in Economics and Finance 1999 1052, Society for Computational Economics.
  2. Orphanides, Athanasios, 2003. "Historical monetary policy analysis and the Taylor rule," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 983-1022, July.
  3. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
  4. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, vol. 91(4), pages 964-985, September.
  5. Whitney Newey & Richard Smith, 2003. "Higher order properties of GMM and generalised empirical likelihood estimators," CeMMAP working papers CWP04/03, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  6. Levine, Paul & McAdam, Peter & Pearlman, Joseph G., 2006. "Inflation forecast-based-rules and indeterminacy: a puzzle and a resolution," Working Paper Series 0643, European Central Bank.
  7. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "Monetary policy rules and macroeconomic stability: Evidence and some theory," Economics Working Papers 350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
  8. Marc Paolo Giannoni & Michael Woodford, 2003. "How forward-looking is optimal monetary policy?," Proceedings, Federal Reserve Bank of Cleveland, pages 1425-1483.
  9. Nicoletta Batini & Alejandro Justiniano & Paul Levine & Joseph Pearlman, 2004. "Robust Inflation-Forecast-Based Rules to Shield against Indeterminacy," School of Economics Discussion Papers 0804, School of Economics, University of Surrey.
  10. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  11. Orphanides, Athanasios & Wieland, Volker, 2008. "Economic Projections and Rules-of-Thumb for Monetary Policy," CEPR Discussion Papers 6748, C.E.P.R. Discussion Papers.
  12. Williams, John C. & Levin, Andrew T. & Wieland, Volker, 2001. "The performance of forecast-based monetary policy rules under model uncertainty," Working Paper Series 0068, European Central Bank.
  13. Donald W.K. Andrews, 1988. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Cowles Foundation Discussion Papers 877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
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