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Do we really know that U.S. monetary policy was destabilizing in the 1970s?

Qazi Haque (), Nicolas Groshenny and Mark Weder ()

No 20/2019, Research Discussion Papers from Bank of Finland

Abstract: The paper re-examines whether the Federal Reserve’s monetary policy was a source of instability during the Great Inflation by estimating a sticky-price model with positive trend inflation, commodity price shocks and sluggish real wages. Our estimation provides empirical evidence for substantial wage-rigidity and finds that the Federal Reserve responded aggressively to inflation but negligibly to the output gap. In the presence of non-trivial real imperfections and well-identified commodity price-shocks, U.S. data prefers a determinate version of the New Keynesian model: monetary policy-induced indeterminacy and sunspots were not causes of macroeconomic instability during the pre-Volcker era.

JEL-codes: E32 E52 E58 (search for similar items in EconPapers)
Date: 2019-09-11
New Economics Papers: this item is included in nep-cba, nep-dge, nep-his, nep-hpe, nep-mac and nep-mon
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Related works:
Working Paper: Do We Really Know that U.S. Monetary Policy was Destabilizing in the 1970s? (2019) Downloads
Working Paper: Do We Really Know that U.S. Monetary Policy was Destabilizing in the 1970s? (2019) Downloads
Working Paper: Do We Really Know that U.S. Monetary Policy was Destabilizing in the 1970s? (2018) Downloads
Working Paper: Do we really know that US monetary policy was destabilizing in the 1970s? (2018) Downloads
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