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How credible is the Federal Reserve?:A structural estimation of policy re-optimizations

Aeimit Lakdawala and Davide Debortoli ()

No 1333, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: Using a Markov-switching Bayesian likelihood approach, we examine the behavior of the Federal Reserve over the post WWII period. We estimate a medium-scale macroeconomic model, where monetary policy is chosen by a central bank endowed with a commitment technology, and where a regime-switching process governs occasional re-optimizations of announced plans. Our estimates show that deviations from commitment plans were rather infrequent: seven main re-optimization episodes are identified, at times consistent with conventional narrative accounts of the US monetary history. Our framework is used to discuss the role of policy re-optimizations as sources monetary policy shocks, and to assess the importance of central bank credibility through counterfactual analysis.

Date: 2013
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Journal Article: How Credible Is the Federal Reserve? A Structural Estimation of Policy Re-optimizations (2016) Downloads
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More papers in 2013 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
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