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Can we Identify the Fed's Preferences?

Jean-Bernard Chatelain () and Kirsten Ralf

MPRA Paper from University Library of Munich, Germany

Abstract: A pre-test of Ramsey optimal policy versus time-consistent policy rejects time-consistent policy and (optimal) simple rule for the U.S. Fed during 1960 to 2006, assuming the reference new-Keynesian Phillips curve transmission mechanism with auto-correlated cost-push shock. The number of reduced form parameters is larger with Ramsey optimal policy than with time-consistent policy although the number of structural parameters, including central bank preferences, is the same. The new-Keynesian Phillips curve model is under-identified with Ramsey optimal policy (one identifying equation missing) and hence under-identified for time-consistent policy (three identifying equations missing). Estimating a structural VAR for Ramsey optimal policy during Volcker-Greenspan period, the new-Keynesian Phillips curve slope parameter and the Fed's preferences (weight of the volatility of the output gap) are not statistically different from zero at the 5% level.

Keywords: Ramsey optimal policy; Time-consistent policy; Identification; Central bank preferences; New-Keynesian Phillips curve. (search for similar items in EconPapers)
JEL-codes: C61 C62 E31 E52 E58 (search for similar items in EconPapers)
Date: 2017-02-13
New Economics Papers: this item is included in nep-mac and nep-mon
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https://mpra.ub.uni-muenchen.de/76831/1/MPRA_paper_76831.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/81007/1/MPRA_paper_81007.pdf revised version (application/pdf)

Related works:
Working Paper: Can We Identify the Fed's Preferences? (2017) Downloads
Working Paper: Can We Identify the Fed's Preferences? (2017) Downloads
Working Paper: Can we Identify the Fed's Preferences? (2017) Downloads
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