Controlling Inflation in a Cointegrated Vector Autoregressive Model with an Application to US Data

Soren Johansen and Katarina Juselius

No 01-03, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: The notions of instrument, intermediate target and final target are defined in the context of the cointegrated VAR. A target variable is said to be controllable if it can be made stationary around a desired target value by using the instrument. This can be expressed as a condition on the long-run impact matrix. Applying a control rule to intervene in the market changes the dynamics of the process and the properties of the new controlled process have to be derived. The theoretical results are applied to US monetary data on a daily and monthly basis. The empirical results do not provide support for the widely held belief that the Federal Reserve Bank can bring US CPI inflation down by increasing the federal funds rate.

Keywords: Inflation Target; Monetary Instruments; Control Rules (search for similar items in EconPapers)
JEL-codes: C3 E5 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2001-01
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets and nep-mon
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Citations: View citations in EconPapers (26)

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Related works:
Working Paper: Controlling Inflation in a Cointergrated Vector Autoregressive Model with an Application to US Data (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:0103

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