Technology Shocks and Monetary Policy: Assessing the Fed's Performance

Galí, Jordi, Vallés Liberal, Javier and López-Salido, J David
Authors registered in the RePEc Author Service: Jordi Galí and J. David Lopez-Salido

No 3211, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The purpose of the present Paper is twofold. First, we characterize the Fed?s systematic response to technology shocks and its implications for US output, hours and inflation. Second we evaluate the extent to which those responses can be accounted for by a simple monetary policy rule (including the optimal one) in the context of a standard business cycle model with sticky prices. Our main results can be described as follows: First, we detect significant differences across periods in the response of the economy (as well as the Fed?s) to a technology shock. Second, the Fed?s response to a technology shock in the Volcker-Greenspan period is consistent with an optimal monetary policy rule. Third, in the pre-Volcker period the Fed?s policy tended to over stabilize output at the cost of generating excessive inflation volatility. Our evidence reinforces recent results in the literature suggesting an improvement in the Fed?s performance.

Keywords: Optimal monetary policy; Monetary targeting; Taylor rule; Fed behaviour (search for similar items in EconPapers)
JEL-codes: E31 E58 (search for similar items in EconPapers)
Date: 2002-02
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Related works:
Journal Article: Technology shocks and monetary policy: assessing the Fed's performance (2003)
Working Paper: Technology Shocks and Monetary Policy: Assessing the Fed's Performance (2002)
Working Paper: Technology Shocks and Monetary policy: Assessing the Fed's Performance (2000)
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