Indeterminacy and Learning: An Analysis of Monetary Policy in the Great Inflation

Christian Matthes and Thomas Lubik
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Thomas Lubik: Federal Reserve Bank of Richmond

No 973, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: We estimate the full model using Bayesian methods and allow for both determinate and indeterminate equilibria. Our estimates of the resulting equilibria during the Great Inflation of the 1970s reveal that the Fed’s optimal policy response was seen by the private sector as leading to an indeterminate equilibrium although it was based on mismeasured data, not a deliberately soft policy response. Whereas, the Volcker disinflation suffered from fewer measurement issues and quickly led the Fed to a determinate policy path.

Date: 2013
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Related works:
Journal Article: Indeterminacy and learning: An analysis of monetary policy in the Great Inflation (2016)
Working Paper: Indeterminacy and Learning: An Analysis of Monetary Policy in the Great Inflation (2014)
Working Paper: Indeterminacy and Learning: An Analysis of Monetary Policy in the Great Inflation (2014)
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