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New economy : new policy rules?

  • Eric Schaling, James Bullard

We wish to understand the implications of recent shifts in US productivity for the structure of optimal monetary policy rules. Accordingly, we augment a standard inflation targeting model in which a forward-looking version of the Taylor rule constitutes the optimal monetary policy with regime switching in productivity, and calculate the optimal rule. We find that a rule that incorporates leading indicators about regimes significantly outperforms the Taylor-type rule. We use this result to comment on the new economy events of the 1990s and the stagflation events of the 1970s.

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2001 with number 53.

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Date of creation: 01 Apr 2001
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Handle: RePEc:sce:scecf1:53
Contact details of provider: Web page: http://www.econometricsociety.org/conference/SCE2001/SCE2001.html
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  1. Svensson, Lars E.O., 1997. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," Seminar Papers 615, Stockholm University, Institute for International Economic Studies.
  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. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
  4. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
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