Monetary policy, inflation target and the great moderation: An empirical investigation

Qazi Haque

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: This paper estimates a New Keynesian model with trend inflation and contrasts Taylor rules featuring fixed versus time-varying inflation target while allowing for passive monetary policy. The estimation is conducted over the Great Inflation and the Great Moderation periods. Time-varying inflation target empirically fits better and active monetary policy prevails in both periods, thereby ruling out sunspots as an explanation of the Great Inflation episode. Counterfactual simulations suggest that the decline in inflation volatility since the mid-1980s is mainly driven by monetary policy, while the reduction in output growth variability is explained by the reduced volatility of technology shocks.

Keywords: Monetary policy; Trend Inflation; Inflation Target; Indeterminacy; Great Inflation; Great Moderation; Sequential Monte Carlo (search for similar items in EconPapers)
JEL-codes: C11 C52 C62 E31 E32 E52 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2019-06
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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https://cama.crawford.anu.edu.au/sites/default/fil ... 06/44_2019_haque.pdf (application/pdf)

Related works:
Journal Article: Monetary Policy, Inflation Target, and the Great Moderation: An Empirical Investigation (2022)
Working Paper: Monetary Policy, Inflation Target and the Great Moderation: An Empirical Investigation (2019)
Working Paper: Monetary Policy, Inflation Target and the Great Moderation: An Empirical Investigation (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2019-44

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