Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory

Richard Clarida, Jordi Galí and Mark Gertler

No 6442, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We estimate a forward-looking monetary policy reaction function for the postwar 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 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. In contrast, the Volcker-Greenspan rule is stabilizing.

JEL-codes: E32 E52 (search for similar items in EconPapers)
Date: 1998-03
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (201)

Published as Quarterly Journal of Economics, Vol. CXV, issue 1 (2000): 147-180.

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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 (1998)
Working Paper: Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory (1998)
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