Testing the Opportunistic Approach to Monetary Policy

Christopher Martin () and Costas Milas

No KERP 2007/02, Keele Economics Research Papers from Centre for Economic Research, Keele University

Abstract: The Opportunistic Approach to Monetary Policy is an influential but untested model of optimal monetary policy. We provide the first tests of the model, using US data from 1983Q1-2004Q1. Our results support the Opportunistic Approach. We find that policymakers respond to the gap between inflation and an intermediate target that reflects the recent history of inflation. We find that there is no response of interest rates to inflation when inflation is within 1intermediate target.

Keywords: Monetary policy; zone of discretion; intermediate inflation target. (search for similar items in EconPapers)
JEL-codes: C51 C52 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2007-01
Note: We are also grateful to Kalvinder Shields for making the real-time output data used in the Garratt, Lee, Mise and Shields (2005) working paper available to us.
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Working Paper: Testing the Opportunistic Approach to Monetary Policy (2006)
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