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The mechanics of a reasonably fitted quarterly New Keynesian macro model

Listed author(s):
  • Mayer, Eric

The last years have witnessed a sharp increase of interest in monetary policy rules (see Taylor [1999]). This normative branch of monetary policy tries to evaluate the performance of alternative monetary policy rules in terms of associated monetary policy outcomes. Nevertheless this exercise is crucially based on the assumption that key parameters of the model are realistically specified. This holds in particular true for the preference vector of the central bank which trades off the individual goal variables of monetary policy and the degree of forward lookingness in the Phillips curve and the IS equation. Based on matching moments and the implied autocorrelations and cross correlations we present evidence for the USA covering the term of Allan Greenspan (1987:4- 2002:2) that hybrid specifications of the Phillips curve and the IS-curve are characterized by approximately 60% of backward looking economic agents. The predominant goal of monetary policy is price stability and financial market stability. Output gap stabilizationonly seems to play a minor role as an independent goal for the conduct of monetary policy.

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Paper provided by University of Würzburg, Chair for Monetary Policy and International Economics in its series W.E.P. - Würzburg Economic Papers with number 41.

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Date of creation: 2003
Handle: RePEc:zbw:wuewep:41
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  1. John B. Taylor, 1999. "Introduction to "Monetary Policy Rules"," NBER Chapters, in: Monetary Policy Rules, pages 1-14 National Bureau of Economic Research, Inc.
  2. Laurence Ball, 1997. "Efficient rules for monetary policy," Reserve Bank of New Zealand Discussion Paper Series G97/3, Reserve Bank of New Zealand.
  3. Lars E. O. Svensson, 2003. "What Is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 426-477, June.
  4. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Modeling Money," NBER Working Papers 6371, National Bureau of Economic Research, Inc.
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  6. Richard Dennis, 2006. "The policy preferences of the US Federal Reserve," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(1), pages 55-77.
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  8. Jagjit Chadha & Philip Schellekens, 1999. "Monetary policy loss functions: two cheers for the quadratic," Bank of England working papers 101, Bank of England.
  9. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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  11. Stephen Cecchetti & Michael Ehrmann, 2000. "Does Inflation Targeting Increase Output volatility? An International Comparison of Policy Maker's Preferences and Outcomes," Working Papers Central Bank of Chile 69, Central Bank of Chile.
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  13. Ben Martin & Chris Salmon, 1999. "Should uncertain monetary policy-makers do less?," Bank of England working papers 99, Bank of England.
  14. Taylor, John B., 1998. "The Robustness and Efficiency of Monetary Policy Rules as Guidelines for Interest Rate Setting by the European Central Bank," Seminar Papers 649, Stockholm University, Institute for International Economic Studies.
  15. John B. Taylor, 1998. "An Historical Analysis of Monetary Policy Rules," NBER Working Papers 6768, National Bureau of Economic Research, Inc.
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  18. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-984, November.
  19. Eric Jondeau & Hervé Le Bihan, 2001. "Testing for a Forward-Looking Phillips Curve. Additional Evidence from European and US data," Macroeconomics 0111005, EconWPA.
  20. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
  21. Söderlind, Paul, 1998. "Solution and Estimation of RE Macromodels with Optimal Policy," SSE/EFI Working Paper Series in Economics and Finance 256, Stockholm School of Economics.
  22. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June.
  23. Rafael Domenech & Mayte Ledo & David Taguas, 2001. "A Small Forward-Looking Macroeconomic Model for EMU," Working Papers 0102, BBVA Bank, Economic Research Department.
  24. Carlo A. Favero, "undated". "Macroeconomic stability and the preferences of the Fed. A formal analysis, 1961-98," Working Papers 200, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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