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Monetary policy, inflation and unemployment. In Defense of the Federal Reserve

  • Nicolas Groshenny

    (Reserve Bank of New Zealand)

a model-consistent measure of the unemployment gap. The historical decomposition of the unemployment gap emphasizes the expansionary effects of monetary policy shocks during each of the three recessions that characterize the period. In a counterfactual experiment where the estimated historical monetary policy shocks are turned off, the U.S. economy enters in deflation in 2002 and 2008. Moreover the unemployment gap becomes significantly more volatile. These results suggest that monetary policy shocks did contribute greatly to enhance macroeconomic stability during the last decade.

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Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 676.

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Date of creation: 2010
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Handle: RePEc:red:sed010:676
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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