How forward-looking is the Fed? Direct estimates from a ‘Calvo-type’ rule

Vasco J. Gabriel, Paul Levine () and Christopher Spencer ()

No 09/2008, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: We estimate an alternative type of monetary policy rule, termed Calvo rule, according to which the central bank is assumed to target a discounted infinite sum of future expected inflation. Compared to conventional inflation forecast-based rules, which are typically of the Taylor-type with discrete forward looking horizons, this class of rule is less prone to the problem of indeterminacy. Parameter estimates obtained from GMM estimation provide support for Calvo-type rules, suggesting that the Federal Reserve targeted a mean forward horizon of between 4 and 8 quarters.

Keywords: Calvo-type interest rules; Inflation Forecast Based rules; GMM; indeterminacy. (search for similar items in EconPapers)
JEL-codes: C22 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2008
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Related works:
Working Paper: How forward-looking is the Fed? Direct estimates from a `Calvo-type' rule (2008)
Journal Article: How forward-looking is the Fed? Direct estimates from a [`]Calvo-type' rule (2009)
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