Can We Identify the Fed's Preferences?

Jean-Bernard Chatelain and Kirsten Ralf

PSE Working Papers from HAL

Abstract: Using US data, we estimate optimal policy with a probability below one that the Fed reneges on its commitment ("limited credibility") versus discretionary policy where the Fed reneges on its commitment at all periods with a probability equal to one ("zero credibility"). The transmission mechanism is the new-Keynesian Phillips curve with auto-correlated cost-push shock. It includes the labor cost channel or the working capital channel. Discretion with zero credibility of the Fed is rejected. The working capital channel fits the data before Volcker's mandate. The labor cost channel fits the data since Volcker's mandate.

Keywords: Ramsey optimal policy; zero-credibility policy; Identification; Central bank preferences; New-Keynesian Phillips curve; Working capital channel (search for similar items in EconPapers)
Date: 2017-12
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01549908v3
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Citations: View citations in EconPapers (6)

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Working Paper: Can We Identify the Fed's Preferences? (2017)
Working Paper: Can we Identify the Fed's Preferences? (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:psewpa:halshs-01549908

DOI: 10.2139/ssrn.2914592

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