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The Fed and the New Economy

  • Laurence Ball
  • Robert R Tchaidze

This paper seeks to understand the behavior of Greenspan’s Federal Reserve in the late 1990s Some authors suggest that the Fed followed a simple Taylor rule while others argue that it deviated from such a rule because it recognized that the New Economy permitted an easing of policy We find that a Taylor rule based on inflation and unemployment does break down in the late 1990s However the Fed’s behavior appears stable once one accounts for the falling NAIRU of the period A rule based on inflation and the deviation of unemployment from the NAIRU captures the Fed’s behavior through the entire period from 1987 to 2000

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Paper provided by The Johns Hopkins University,Department of Economics in its series Economics Working Paper Archive with number 465.

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Date of creation: Dec 2001
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Handle: RePEc:jhu:papers:465
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  1. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters, in: Monetary Policy Rules, pages 319-348 National Bureau of Economic Research, Inc.
  2. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  3. Gordon, Robert J, 1996. "The Time-varying NAIRU and its Implications for Economic Policy," CEPR Discussion Papers 1492, C.E.P.R. Discussion Papers.
  4. Douglas O. Staiger & James H. Stock & Mark W. Watson, 1997. "How Precise Are Estimates of the Natural Rate of Unemployment?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 195-246 National Bureau of Economic Research, Inc.
  5. 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.).
  6. Douglas Staiger & James H. Stock & Mark W. Watson, 1997. "The NAIRU, Unemployment and Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 33-49, Winter.
  7. Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 297-346.
  8. N. Gregory Mankiw, 2001. "U.S. Monetary Policy During the 1990s," NBER Working Papers 8471, National Bureau of Economic Research, Inc.
  9. Robert R Tchaidze, 2001. "Estimating Taylor Rules in a Real Time Setting," Economics Working Paper Archive 457, The Johns Hopkins University,Department of Economics.
  10. Laurence Ball & Robert Moffitt, 2001. "Productivity Growth and the Phillips Curve," NBER Working Papers 8421, National Bureau of Economic Research, Inc.
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