 Monetary policy in real timeDomenico Giannone, Lucrezia Reichlin and Luca Sala () ULB Institutional Repository from ULB -- Universite Libre de Bruxelles Abstract: We analyze the panel of the Greenbook forecasts (sample 1970-1996) and a large panel of monthly variables for the United States (sample 1970-2003) and show that the bulk of dynamics of both the variables and their forecasts is explained by two shocks. A two-factor model that exploits, in real time, information on many time series to extract a two-dimensional signal produces a degree of forecasting accuracy of the federal funds rate similar to that of the markets and, for output and inflation, similar to that of the Greenbook forecasts. This leads us to conclude that the stochastic dimension of the U.S. economy is two. We also show that dimension two is generated by a real and nominal shock, with output mainly driven by the real shock, and inflation mainly driven by the nominal shock. The implication is that, by tracking any forecastable measure of real activity and price dynamics, the central bank can track all fundamental dynamics in the economy. Date: 2005 Published in: Macroeconomics Annual (2005),p.161-200 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ulb:ulbeco:2013/6401 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in ULB Institutional Repository from ULB -- Universite Libre de Bruxelles Contact information at EDIRC. |
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