The Greenbook and U.S. Monetary Policy

Robert Tchaidze

No 2004/213, IMF Working Papers from International Monetary Fund

Abstract: Although very attractive both theoretically and empirically, Taylor rules imply mechanical responses by the policy variable (interest rate) to fundamental ones (inflation and output gap). This study looks for empirical evidence of a more sophisticated monetary policy, one which takes into account expected future developments. An important piece of information added is the "Greenbook" forecast series, calculated by the Federal Reserve staff and which allow evaluation of expected inflation shocks. These shocks are significant in the estimated Taylor rule, confirming that policymaking is forward looking. This paper also demonstrates that a simple Taylor rule may be a misspecification if policymakers have in mind a timevarying inflation target.

Keywords: WP; monetary policy; Taylor rule; real-time data; inflation shock; lags-and-forecasts output gap estimate; output gap shock; inflation response; output gap response; Output gap; Inflation; Inflation targeting; Real interest rates; Middle East (search for similar items in EconPapers)
Pages: 23
Date: 2004-11-01
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Citations: View citations in EconPapers (3)

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