Monetary policy and indeterminacy after the 2001 slump

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dc.contributor.authorDoko Tchatoka, F.
dc.contributor.authorGroshenny, N.
dc.contributor.authorHaque, Q.G.
dc.contributor.authorWeder, M.
dc.date.issued2016
dc.descriptionJanuary 2016
dc.description.abstractThis 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.
dc.description.statementofresponsibilityFirmin Doko Tchatoka, Nicolas Groshenny, Qazi Haque, Mark Weder
dc.identifier.issn2206-0332
dc.identifier.orcidDoko Tchatoka, F. [0000-0003-1876-0633]
dc.identifier.orcidGroshenny, N. [0000-0002-2256-1621]
dc.identifier.urihttp://hdl.handle.net/2440/103062
dc.language.isoen
dc.publisherCentre for Applied Macroeconomic Analysis
dc.relation.granthttp://purl.org/au-research/grants/arc/DP140102869
dc.relation.ispartofseriesCAMA Working Paper; 2/2016
dc.rightsCopyright status unknown
dc.source.urihttps://cama.crawford.anu.edu.au/publication/cama-working-paper-series/6970/monetary-policy-and-indeterminacy-after-2001-slump
dc.subjectGreat deviation; indeterminacy; Taylor Rules
dc.titleMonetary policy and indeterminacy after the 2001 slump
dc.typeWorking paper
pubs.publication-statusPublished

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