Monetary policy rules and macroeconomic stability: Evidence and some theory

Richard Clarida, Jordi Galí and Mark Gertler

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We estimate a forward-looking monetary policy reaction function for the postwar United States economy, before and after Volcker's appointment as Fed Chairman in 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 the equilibrium properties of inflation and output, using a simple macroeconomic model, and show that the Volcker-Greenspan rule is stabilizing.

Keywords: Monetary policy rules; business cycles; Taylor rules; sunspot fluctuations (search for similar items in EconPapers)
JEL-codes: E32 E52 (search for similar items in EconPapers)
Date: 1997-03, Revised 1999-05
New Economics Papers: this item is included in nep-ifn, nep-mon and nep-pol
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Citations: View citations in EconPapers (11)

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Related works:
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)
Working Paper: Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:350

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