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Type: Working paper
Title: Monetary policy and indeterminacy after the 2001 slump
Author: Doko Tchatoka, F.
Groshenny, N.
Haque, Q.G.
Weder, M.
Publisher: Centre for Applied Macroeconomic Analysis
Issue Date: 2016
Series/Report no.: CAMA Working Paper; 2/2016
Statement of
Firmin Doko Tchatoka, Nicolas Groshenny, Qazi Haque, Mark Weder
Abstract: This paper estimates a New Keynesian model of the U.S. economy over the period following the 2001 slump, a period for which the adequacy of monetary policy is intensely debated. To relate to this debate, we consider three alternative empirical inflation series in the estimation. When using CPI or PCE, we find some support for the view that the Federal Reserve’s policy was extra easy and may have led to equilibrium indeterminacy. Instead, when measuring inflation with core PCE, monetary policy appears to have been reasonable and sufficiently active to rule out indeterminacy. We then relax the assumption that inflation in the model is measured by a single indicator. We re-formulate the artificial economy as a factor model where the theory’s concept of inflation is the common factor to the three empirical inflation series. We find that CPI and PCE provide better indicators of the latent concept while core PCE is less informative. Again, this procedure cannot dismiss indeterminacy.
Keywords: Great deviation; indeterminacy; Taylor Rules
Description: January 2016
Rights: Copyright status unknown
RMID: 0030045526
Grant ID:
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Appears in Collections:Economics Working papers

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