The policy preferences of the US Federal Reserve

Richard Dennis

126 citations0/0 files storedJournal of Applied Econometrics

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Monetary Policy and Economic Impact Global Financial Crisis and Policies Economic theories and models

Abstract

Abstract In this paper we model and explain US macroeconomic outcomes subject to the discipline that monetary policy is set optimally. Exploiting the restrictions that come from optimal policymaking, we estimate the parameters in the Federal Reserve's policy objective function together with the parameters in its optimization constraints. For the period following Volcker's appointment as chairman, we estimate the implicit inflation target to be around 1.4% and show that policymakers assigned a significant weight to interest rate smoothing. We show that the estimated optimal policy provides a good description of US data for the 1980s and 1990s. Copyright © 2005 John Wiley & Sons, Ltd.

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References

1993Discretion versus policy rules in practice 2000Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory*1993Tests for Parameter Instability and Structural Change With Unknown Change Point 1999Monetary Policy Rules 1997Inflation forecast targeting: Implementing and monitoring inflation targets 2001Monetary Policy Rules Based on Real-Time Data 1997Inflation Targeting: A New Framework for Monetary Policy?2000Habit Formation in Consumption and Its Implications for Monetary-Policy Models

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2011Monetary and Macroprudential Policies 2007The Monetary Policy of the European Central Bank 2021Taking the Fed at its Word: A New Approach to Estimating Central Bank Objectives using Text Analysis 2018Estimating the Taylor rule in the time-frequency domain 2006How Important Is Precommitment for Monetary Policy?2008Estimation of Monetary Policy Preferences in a Forward-Looking Model: A Bayesian Approach

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