 Inflation targeting and output stabilization in an estimated monetary modelKonstantin Platonov and Amir Goren Journal of Economics and Business, 2024, vol. 132, issue C, No S0148619524000511 Abstract: This paper studies determinacy conditions in a monetary model with an interest rate rule. In addition to the inflation rate as an argument of the policy rule, we introduce a second argument: output, a case empirically relevant but overlooked in the existing literature on monetary models with flexible prices. Firstly, we estimate a model with money in utility and the production function. We find that an aggressive response to inflation does not necessarily guarantee determinacy anymore. Secondly, we compare monetary policy in the pre-Volcker era and the post-Volcker era. We find that, after the appointment of Paul Volcker, the Federal Reserve started to respond more aggressively to inflation and less aggressively to output. Indeterminacy is pervasive: the equilibrium is indeterminate in both sub-samples. Thirdly, we estimate the impulse response functions. We find that monetary shocks, sunspot inflation shocks, and productivity shocks have long-lasting effects on inflation, output, and interest rates. Keywords: Monetary model; Money in utility; Money in production; Indeterminacy; Taylor principle (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:132:y:2024:i:c:s0148619524000511 DOI: 10.1016/j.jeconbus.2024.106209 Access Statistics for this article Journal of Economics and Business is currently edited by Emanuele Bajo and Moritz Ritter More articles in Journal of Economics and Business from Elsevier |
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