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Inflation zone targeting and the Federal Reserve

  • Tachibana, Minoru

The purpose of this paper is to examine whether the Federal Reserve (the Fed) implicitly implemented an inflation zone targeting policy. To this end, I estimate the piecewise linear Taylor rule, in which the magnitude of the inflation coefficient depends on whether inflation lies within or outside a target zone. The estimation results show that the Fed conducted an inflation zone targeting policy during the 1987-2004 period. In addition, it is found that a symmetric (not asymmetric) specification of the piecewise linear rule is adequate to describe the inflation zone targeting behavior of the Fed. J. Japanese Int. Economies 22 (1) (2008) 68-84.

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Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 22 (2008)
Issue (Month): 1 (March)
Pages: 68-84

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Handle: RePEc:eee:jjieco:v:22:y:2008:i:1:p:68-84
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622903

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  1. Christopher A. Sims & Tao Zha, 2005. "Were There Regime Switches in U.S. Monetary Policy?," Working Papers 92, Princeton University, Department of Economics, Center for Economic Policy Studies..
  2. Jean Boivin, 2005. "Has US Monetary Policy Changed? Evidence from Drifting Coefficients and Real-Time Data," NBER Working Papers 11314, National Bureau of Economic Research, Inc.
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  8. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
  9. Mehra, Yash P, 1997. "A Federal Funds Rate Equation," Economic Inquiry, Western Economic Association International, vol. 35(3), pages 621-30, July.
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  11. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  12. Athanasios Orphanides, 2001. "Monetary policy rules, macroeconomic stability and inflation: a view from the trenches," Finance and Economics Discussion Series 2001-62, Board of Governors of the Federal Reserve System (U.S.).
  13. Orphanides, Athanasios & Wieland, Volker, 1999. "Inflation zone targeting," Working Paper Series 0008, European Central Bank.
  14. Yash P. Mehra, 1999. "A forward-looking monetary policy reaction function," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 33-54.
  15. Athanasios Orphanides, 1998. "Monetary policy rules based on real-time data," Finance and Economics Discussion Series 1998-03, Board of Governors of the Federal Reserve System (U.S.).
  16. Tachibana, Minoru, 2006. "Did the Bank of Japan have a target zone for the inflation rate?," Economics Letters, Elsevier, vol. 92(1), pages 131-136, July.
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