Inferring monetary policy objectives with a partially observed state

Gregory Givens and Michael Salemi

MPRA Paper from University Library of Munich, Germany

Abstract: Accounting for the uncertainty inherent in real-time perceptions of the state of the economy is believed to be critical for the analysis of historical monetary policy. We investigate this claim through the lens of a small-scale new-Keynesian model with optimal discretionary policy and partial information about the state. The model is estimated using maximum likelihood on US data over the Volcker-Greenspan-Bernanke regime. A comparison of our estimates to those from a version of the model with complete information reveals that under partial information: (i) the Federal Reserve demonstrates a significant concern for stabilizing fluctuations in the output gap, and (ii) the discrepancy between optimal and observed policy behavior is smaller.

Keywords: Partial Information; Optimal Monetary Policy; Central Bank Preferences (search for similar items in EconPapers)
JEL-codes: E37 E52 E58 (search for similar items in EconPapers)
Date: 2012-05-30
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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Journal Article: Inferring monetary policy objectives with a partially observed state (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:39353

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