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

Author

Listed:
  • Vasco Gabriel

    (University of Surrey)

  • Paul Levine

    (University of Surey)

  • Christopher Spencer

    (University of Surrey)

Abstract

We estimate an alternative type of monetary policy rule, termed Calvo rule, according to which the central bank is assumed to target a discounted in?nite sum of future expected in?ation. Compared to conventional in?ation forecast-based rules, which are typically of the Taylor-type with discrete forward looking horizons, this class of rule is less prone to the problem of indeterminacy. Parameter estimates obtained from GMM estimation provide support for Calvo-type rules, suggesting that the Federal Reserve targeted a mean forward horizon of between 4 and 8 quarters.

Suggested Citation

  • Vasco Gabriel & Paul Levine & Christopher Spencer, 2008. "How forward-looking is the Fed? Direct estimates from a `Calvo-type' rule," School of Economics Discussion Papers 0508, School of Economics, University of Surrey.
  • Handle: RePEc:sur:surrec:0508
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    References listed on IDEAS

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    Cited by:

    1. Eurilton Araújo & Débora Gouveia, 2013. "Calvo-type rules and the forward-looking behavior of inflation targeting central banks," Economics Bulletin, AccessEcon, vol. 33(3), pages 2042-2051.
    2. Best Gabriela & Kapinos Pavel, 2016. "Monetary policy and news shocks: are Taylor rules forward-looking?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 16(2), pages 335-360, June.
    3. Fernando Alexandre & Miguel Portela & Carla Sá, 2008. "Admission conditions and graduates' employability," NIPE Working Papers 16/2008, NIPE - Universidade do Minho.
    4. Vasco J. Gabriel & Paul Levine & Joseph Pearlman & Bo Yang, 2010. "An Estimated DSGE Model of the Indian Economy," NIPE Working Papers 29/2010, NIPE - Universidade do Minho.
    5. Ida Wolden Bache & Øistein Røislanda & Kjersti Næss Torstensen, 2011. "Interest Rate Smoothing and "Calvo-Type" Interest Rate Rules: A Comment on Levine, McAdam, and Pearlman (2007)," International Journal of Central Banking, International Journal of Central Banking, vol. 7(3), pages 79-90, September.
    6. Paulo Bastos & Natália P. Monteiro, 2011. "Managers and Wage Policies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(4), pages 957-984, December.
    7. Ali, Syed Zahid & Anwar, Sajid, 2017. "Exchange rate pass through, cost channel to monetary policy transmission, adaptive learning, and the price puzzle," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 69-82.
    8. Kapinos, Pavel, 2011. "Forward-looking monetary policy and anticipated shocks to inflation," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 620-633.
    9. Seip, Knut L. & McNown, Robert, 2013. "Monetary policy and stability during six periods in US economic history: 1959–2008: a novel, nonlinear monetary policy rule," Journal of Policy Modeling, Elsevier, vol. 35(2), pages 307-325.

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    More about this item

    Keywords

    Calvo-type interest rules; In?ation Forecast Based rules; GMM; Indeterminacy.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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