Monetary Policy and Indeterminacy after the 2001 Slump

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

VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association

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. To relate to this debate, we consider three alternative empirical inflation series in the estimation. When using CPI or PCE, we find some support for the view that the Federal Reserve's policy was extra easy and may have led to equilibrium indeterminacy. Instead, when measuring inflation with core PCE, monetary policy appears to have been reasonable and suffciently active to rule out indeterminacy. We then relax the assumption that inflation in the model is measured by a single indicator. We re-formulate the artificial economy as a factor model where the theory's concept of inflation is the common factor to the three empirical inflation series. We find that CPI and PCE provide better indicators of the latent concept while core PCE is less informative. Again, this procedure cannot dismiss indeterminacy.

JEL-codes: E30 E32 E50 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in 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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