Monetary Policy and Indeterminacy after the 2001 Slump

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

No 2016-18, 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. We find that only when measuring inflation with core PCE does monetary policy appear 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. CPI and PCE provide better indicators of the latent concept while core PCE is less informative. Finally, we estimate an economy that distinguishes between core and headline inflation rates. This model comfortably rules out indeterminacy.

Keywords: Indeterminacy; Taylor Rules; Great Deviation (search for similar items in EconPapers)
JEL-codes: E32 E52 E58 (search for similar items in EconPapers)
Date: 2016-12
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 (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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