Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory

Richard Clarida, Jordi Galí and Mark Gertler

No 1908, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We estimate a forward-looking monetary policy reaction function for the US economy, pre- and post-October 1979. Our results point to substantial differences in the estimated rule across periods. In particular, interest rate policy in the Volcker-Greenspan period appears to have been much more sensitive to changes in expected inflation than in the pre-Volcker period. We then compare some of the implications of the estimated rules for the equilibrium properties of inflation and output, using a simple macroeconomic model. The pre-Volcker rule is shown to be consistent with the possibility of persistent, self-fulfilling fluctuations in inflation and output.

Keywords: Business Cycles; monetary policy rules; sunspot fluctuations (search for similar items in EconPapers)
JEL-codes: E32 E52 (search for similar items in EconPapers)
Date: 1998-06
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Citations: View citations in EconPapers (262)

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Related works:
Journal Article: Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory (2000)
Working Paper: Monetary policy rules and macroeconomic stability: Evidence and some theory (1999)
Working Paper: Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory (1998)
Working Paper: Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory (1998)
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