Changes in Federal Reserve preferences

Aeimit Lakdawala

Journal of Economic Dynamics and Control, 2016, vol. 70, issue C, 124-143

Abstract: Using a model of optimizing central bank behavior, I estimate the dynamic behavior of preferences, which are captured by the relative weight put on stabilizing inflation versus minimizing the output gap. Unlike previous work, I let this parameter vary continuously over time. There is a drastic but steady rise in the weight on inflation around the appointment of Paul Volcker; however, I find variation in preferences throughout the sample period. The results suggest that preference changes have been more complex than typically assumed in the literature. The estimated preference series is used to perform counterfactual experiments and to construct a new measure of monetary shocks.

Keywords: Monetary policy; Federal Reserve preferences; Monetary shocks; Time-varying parameter; Extended Kalman filter (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:70:y:2016:i:c:p:124-143

DOI: 10.1016/j.jedc.2016.07.003

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