Monetary Policy and Indeterminacy after the 2001 Slump

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

No 2016-09, 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 alternative inflation series in the estimation. We find that only when measuring inflation with core PCE 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 and re-formulate the artificial economy as a factor model where the theoryÂ’s concept of inflation is the common factor to the empirical inflation series. We find that CPT and PCE provide better indicators of the latent concept while core PCE is less informative. Finally, we allow for positive trend inflation and the emerging results complement our previous findings. Again, even with these extensions, the only instance in which we can confidently rule out indeterminacy is when we measure inflation with core PCE.

Keywords: Indeterminacy; Taylor Rules; Trend Inflation; Great Deviation. (search for similar items in EconPapers)
JEL-codes: E32 E52 E58 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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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 (2015)
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