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Macroeconomic Regimes

Lieven Baele (), Geert Bekaert (), Seonghoon Cho (), Koen Inghelbrecht and Antonio Moreno ()

No 17090, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We estimate a New-Keynesian macro model accommodating regime-switching behavior in monetary policy and in macro shocks. Key to our estimation strategy is the use of survey-based expectations for inflation and output. We identify accommodating monetary policy before 1980, with activist monetary policy prevailing most but not 100% of the time thereafter. Systematic monetary policy switched to the activist regime in the 2000-2005 period through an aggressive lowering of interest rates. Discretionary policy spells became less frequent since 1985, but the Volcker period is identified as a discretionary period. Output shocks shift to the low volatility regime around 1985 whereas inflation shocks do so only around 1990, suggesting active monetary policy may have played role in anchoring inflation expectations. Shocks and policy regimes jointly drive the volatility of the macro variables. We provide new estimates of the onset and demise of the Great Moderation and the relative role played by macro-shocks and monetary policy.

JEL-codes: C42 C53 E31 E32 E52 E58 (search for similar items in EconPapers)
Date: 2011-05
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: AP ME IFM
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Published as Baele, Lieven & Bekaert, Geert & Cho, Seonghoon & Inghelbrecht, Koen & Moreno, Antonio, 2015. "Macroeconomic regimes," Journal of Monetary Economics, Elsevier, vol. 70(C), pages 51-71.

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Working Paper: Macroeconomic Regimes (2012) Downloads
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