Modest policy interventions

Eric Leeper and Tao Zha

No 2002-19, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: The authors present a framework for computing and evaluating linear projections of macro variables conditional on hypothetical paths of monetary policy. A modest policy intervention is a change in policy that does not significantly shift agents' beliefs about policy regime and does not generate quantitatively important expectations-formation effects of the kind Lucas (1976) emphasizes. The framework is applied to an econometric model of U.S. postwar monetary policy behavior. It finds that a rich class of interventions routinely considered by the Federal Reserve are modest and their impacts can be reliably forecast by an accurately identified linear model. Moreover, modest interventions can matter: They may shift the projected paths and probability distributions of macro variables in economically meaningful ways.

Keywords: Monetary policy; Forecasting; Vector autoregression (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (22)

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Journal Article: Modest policy interventions (2003)
Working Paper: Modest policy interventions (2003)
Working Paper: Modest Policy Interventions (2002)
Working Paper: Modest policy interventions (1999)
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