Monetary policy, trend inflation, and the Great Moderation: an alternative interpretation: comment based on system estimation

Yasuo Hirose, Takushi Kurozumi and Willem Van Zandweghe

No RWP 15-17, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: What caused the U.S. economy's shift from the Great Inflation era to the Great Moderation era? {{p}} A large literature shows that the shift was achieved by the change in monetary policy from a passive to an active response to inflation. However, Coibion and Gorodnichenko (2011) attribute the shift to a fall in trend inflation along with the policy change, based on a solely estimated Taylor rule and a calibrated staggered-price model. We estimate the Taylor rule and the staggered-price model jointly and demonstrate that the change in monetary policy responses to inflation and other variables suffices for explaining the shift.

Keywords: Equilibrium indeterminacy; Monetary policy; Inflation (search for similar items in EconPapers)
JEL-codes: C11 E31 E52 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2015-12-01
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
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Citations: View citations in EconPapers (5)

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