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Type: Journal article
Title: Indeterminacy and learning: An analysis of monetary policy in the Great Inflation
Author: Lubik, T.A.
Matthes, C.
Citation: 2016; 82(C):85-106
Publisher: Federal Reserve Bank of Richmond
Issue Date: 2016
Series/Report no.: Working papers series /Federal Reserve Bank of Richmond ; 14-02
Statement of
Thomas A. Lubik, Christian Matthes
Abstract: The Great Inflation of the 1970s can be understood as the result of equilibrium indeterminacy in which loose monetary policy engendered excess volatility in macroeconomic aggregates and prices. The Federal Reserve inadvertently pursued policies that were not anti-inflationary enough because it did not fully understand the economic environment it was operating in. Specifically, it had imperfect knowledge about the structure of the economy and was subject to data misperceptions. The combination of learning about the economy and the use of mis-measured data resulted in policies, which the Federal Reserve believed to be optimal, but when implemented led to equilibrium indeterminacy.
Keywords: Federal reserve; great moderation; Bayesian estimation; least squares learning
Description: ISSN: 2475-5648 ; 2475-563X
Rights: © 2014 Federal Reserve Bank of Richmond
Published version:
Appears in Collections:Aurora harvest 8
Economics Working papers

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