Monetary Policy and Indeterminacy after the 2001 Slump

Firmin Doko Tchatoka, Nicolas Groshenny, Qazi Haque and Mark Weder

No 2015-21, School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy

Abstract: This paper estimates a New Keynesian model of the U.S. economy over the period following the 2001 slump, a period for which the adequacy of monetary policy is intensely debated. To relate to this debate, we consider three alternative empirical inflation indicators in the estimation. When using CPI or PCE, we find support for the view that the Federal Reserve's policy was extra easy and may have led to equilibrium indeterminacy. The interpretation changes when using core PCE and monetary policy appears to have been reasonable and sufficiently active to rule out indeterminacy. We then relax the assumption that inflation in the model is measured by a single indicator. We re-formulate the artificial economy as a factor model where the theory's concept of inflation is the common factor to the three empirical inflation series. We find that CPI and PCE provide better indicators of the latent concept while core PCE is less informative. Again, this procedure cannot dismiss indeterminacy.

Keywords: Great Deviation; Indeterminacy; Taylor Rules (search for similar items in EconPapers)
JEL-codes: E32 E52 E58 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2015-12
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Monetary policy and indeterminacy after the 2001 slump (2017)
Working Paper: Monetary policy and indeterminacy after the 2001 slump (2017)
Working Paper: Monetary Policy and Indeterminacy after the 2001 Slump (2016)
Working Paper: Monetary Policy and Indeterminacy after the 2001 Slump (2016)
Working Paper: Monetary policy and indeterminacy after the 2001 slump (2016)
Working Paper: Monetary Policy and Indeterminacy after the 2001 Slump (2016)
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