EconPapers    
Economics at your fingertips  
 

Monetary Policy and Macroeconomic Stability Revisited

Yasuo Hirose, Takushi Kurozumi () and Willem Van Zandweghe ()

Review of Economic Dynamics, 2020, vol. 37, 255-274

Abstract: A large literature has established the view that the Fed's change from a passive to an active policy response to inflation led to U.S. macroeconomic stability after the Great Inflation of the 1970s. We revisit this view by estimating a generalized New Keynesian model using a full-information Bayesian method that allows for indeterminacy of equilibrium and adopts a sequential Monte Carlo algorithm. The estimated model empirically outperforms canonical New Keynesian models that confirm the literature's view. It also points to substantial uncertainty about whether the policy response to inflation was active or passive during the Great Inflation. More importantly, a more active policy response to inflation alone does not suffice for explaining the U.S. macroeconomic stability, unless it is accompanied by a change in either trend inflation or policy responses to the output gap and output growth. This extends the literature by emphasizing the importance of the changes in other aspects of monetary policy in addition to its response to inflation. (Copyright: Elsevier)

Keywords: Monetary policy; Great Inflation; Equilibrium indeterminacy; Trend inflation; Sequential Monte Carlo (search for similar items in EconPapers)
JEL-codes: C11 C52 C62 E31 E52 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://dx.doi.org/10.1016/j.red.2020.03.001
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Monetary Policy and Macroeconomic Stability Revisited" (2020) Downloads
Working Paper: Monetary Policy and Macroeconomic Stability Revisited (2020) Downloads
Working Paper: Monetary Policy and Macroeconomic Stability Revisited (2019) Downloads
Working Paper: Monetary Policy and Macroeconomic Stability Revisited (2018) Downloads
Working Paper: Monetary Policy and Macroeconomic Stability Revisited (2017) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:19-271

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2020.03.001

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

 
Page updated 2020-08-08
Handle: RePEc:red:issued:19-271