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The Science of Monetary Policy: A New Keynesian Perspective
 Journal of Economic Literature
, 1999
"... “Having looked at monetary policy from both sides now, I can testify that central banking in practice is as much art as science. Nonetheless, while practicing this dark art, I have always found the science quEite useful.” 2 Alan S. Blinder ..."
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Cited by 939 (27 self)
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“Having looked at monetary policy from both sides now, I can testify that central banking in practice is as much art as science. Nonetheless, while practicing this dark art, I have always found the science quEite useful.” 2 Alan S. Blinder
What Is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules
 JOURNAL OF ECONOMIC LITERATURE
, 1999
"... It is argued that inflation targeting is best understood as a commitment to a targeting rule rather than an instrument rule, eitherageneral targeting rule (explicit objectives for monetary policy) or a specific targeting rule (a criterion for (the forecasts of) the target variables to be fulfilled), ..."
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Cited by 121 (23 self)
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It is argued that inflation targeting is best understood as a commitment to a targeting rule rather than an instrument rule, eitherageneral targeting rule (explicit objectives for monetary policy) or a specific targeting rule (a criterion for (the forecasts of) the target variables to be fulfilled), essentially the equality of the marginal rates of transformation and substitution between the target variables. Targeting rules allow the use of judgment and extramodel information, are more robust and easier to verify than optimal instrument rules, and they can nevertheless bring the economy close to the socially optimal equilibrium.
Drifts and volatilities: Monetary policies and outcomes
 in the post World War II US. Review of Economic Dynamics
, 2005
"... For a VAR with drifting coefficients and stochastic volatilities, we present posterior densities for several objects that are of interest for designing and evaluating monetary policy. These include measures of inflation persistence, the naturalrateofunemployment,acorerateofinflation, and ‘activism c ..."
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Cited by 85 (2 self)
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For a VAR with drifting coefficients and stochastic volatilities, we present posterior densities for several objects that are of interest for designing and evaluating monetary policy. These include measures of inflation persistence, the naturalrateofunemployment,acorerateofinflation, and ‘activism coefficients’ for monetary policy rules. Our posteriors imply substantial variation of all of these objects for post WWII U.S. data. After adjusting for changes in volatility, persistence of inflation increases during the 1970s then falls in the 1980s and 1990s. Innovation variances change systematically, being substantially larger in the late 1970s than during other times. Measures of uncertainty about core inflation and the degree of persistence covary positively. We use our posterior distributions to evaluate the power of several tests that have been used to test the null of timeinvariance of autoregressive coefficients of VARs against the alternative of timevarying coefficients. Except for one test, we find that those tests have low power against the form of time variation captured by our model. That one test also rejects time invariance in the data. 1
Evolving post World War II U.S. inflation dynamics
 NBER Macroeconomics Annual
, 2001
"... For postwar U.S. data, this paper uses Bayesian methods to account for the four sources of uncertainty in a random coefficients VAR for inflation, unemployment, and an interest rate. We use the model to assemble evidence about the evolution of measures of the persistence of inflation, prospective lo ..."
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Cited by 39 (1 self)
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For postwar U.S. data, this paper uses Bayesian methods to account for the four sources of uncertainty in a random coefficients VAR for inflation, unemployment, and an interest rate. We use the model to assemble evidence about the evolution of measures of the persistence of inflation, prospective longhorizon forecasts (means) of inflation and unemployment, statistics for testing an approximation to the natural unemployment rate hypothesis, and a version of a Taylor rule. We relate these measures to stories that interpret the conquest of U.S. inflation under Volcker and Greenspan as reflecting how the monetary policy authority came to learn an approximate version of the natural unemployment rate hypothesis. We study Taylor’s warning that defects in that approximation may cause the monetary authority to forget the natural rate hypothesis as the persistence of inflation attentuates.
2005), “Endogenous Monetary Policy with Unobserved Potential Output
 Journal of Economic Dynamics and Control
, 1951
"... This paper characterizes monetary policy when policymakers are uncertain about the extent to which movements in output and inflation are due to changes in potential output or to cyclical demand and cost shocks. We refer to this informational limitation as the “information problem ” (IP). The main re ..."
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Cited by 26 (4 self)
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This paper characterizes monetary policy when policymakers are uncertain about the extent to which movements in output and inflation are due to changes in potential output or to cyclical demand and cost shocks. We refer to this informational limitation as the “information problem ” (IP). The main results of the paper are: 1. Policy is likely to be excessively loose (restrictive) for some time when there is a large decrease (increase) in potential output in comparison with a full information benchmark. 2. Errors in forecasting potential output and the output gap are generally serially correlated. These findings provide a partial explanation for the inflation of the seventies and the price stability of the nineties. 3. The increase in the Fed’s conservativeness between the seventies and the nineties, and a more realistic appreciation of the uncertainties surrounding potential output in the second period, imply that the IP problem had greater consequences in the seventies than in the nineties.
United States v
 Philadelphia National Bank, 374 U.S. 321 (1963); Federal Trade Commission v. Proctor & Gamble, 386 U.S. 568
, 1962
"... This paper demonstrates, contrary to what has been shown recently, that demand pressure, besides costpressure, matters both in the labor market and the market for goods in the determination of wage and price inflation. We consider and estimate both wage and price Phillipscurves for the U.S., using ..."
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Cited by 5 (0 self)
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This paper demonstrates, contrary to what has been shown recently, that demand pressure, besides costpressure, matters both in the labor market and the market for goods in the determination of wage and price inflation. We consider and estimate both wage and price Phillipscurves for the U.S., using OLS and nonparametric estimation techniques. The finding is that on the whole wages are more flexible than prices with respect to their respective demand pressure terms and that price inflation determination gives (somewhat) more weight to medium term inflation than does wage inflation. This implies, as reduced form equation, a real wage dynamic that depends positively on the real wage, and thus an adverse real wage adjustment, if aggregate demand depends positively on temporary real wage changes (which is likely to be the case, at least in states of high economic activity). Monetary policy thus is not only facing adverse real rate of interest adjustments (destabilizing Mundelleffects), but also destabilizing real wage adjustments (adverse realwage effects). Such effects have rarely been discussed and estimated in the literature. In comparing linear and nonlinear estimates we find that for some relationships nonlinearities are important for others not. Although overall the nonlinear estimates tend to confirm our linear estimates nonlinearities in some relationships of the Phillipscurve are important as well. JEL CLASSIFICATION SYSTEM FOR JOURNAL ARTICLES:
A NoArbitrage Model of the Term Structure and the Macroeconomy
, 2003
"... This paper develops and estimates a macrofinance model that combines a canonical affine noarbitrage specification of the term structure with standard macroeconomic aggregate relationships for output and inflation. From this model, we obtain several important empirical results: (1) the latent term ..."
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Cited by 3 (0 self)
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This paper develops and estimates a macrofinance model that combines a canonical affine noarbitrage specification of the term structure with standard macroeconomic aggregate relationships for output and inflation. From this model, we obtain several important empirical results: (1) the latent term structure factors from noarbitrage models appear to have important macroeconomic and monetary policy underpinnings, (2) there is no evidence of monetary policy inertia or a slow partial adjustment of the policy interest rate by the Federal Reserve and (3) expectations play an important though limited role in macroeconomic dynamics.
• JEL Codes: C32, E47, C53.
, 2004
"... This paper introduces methods to compute impulse responses without specification and estimation of the underlying multivariate dynamic system. The central idea consists in estimating local projections at each period of interest rather than extrapolating into increasingly distant horizons from a give ..."
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This paper introduces methods to compute impulse responses without specification and estimation of the underlying multivariate dynamic system. The central idea consists in estimating local projections at each period of interest rather than extrapolating into increasingly distant horizons from a given model, as it is done with vector autoregressions (VAR). The advantages of local projections are numerous: (1) they can be estimated by simple regression techniques with standard regression packages; (2) they are more robust to misspecification; (3) joint or pointwise analytic inference is simple; and (4) they easily accommodate experimentation with highly nonlinear and flexible specifications that may be impractical in a multivariate context. Therefore, these methods are a natural alternative to estimating impulse responses from VARs. Monte Carlo evidence and an application to a simple, closedeconomy, newKeynesian model clarify these numerous advantages. • Keywords: impulse response function, local projection, vector autoregression, flexible.
Is the Quantity of Debt a Constraint on Monetary Policy?
, 2003
"... Monetary authorities have often voiced their concerns about a high debt level that could potentially restrain their ability to control the shortterm interest rate as an instrument of monetary policy. However, monetary policy rules in the literature do not account for such constraints. This paper de ..."
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Monetary authorities have often voiced their concerns about a high debt level that could potentially restrain their ability to control the shortterm interest rate as an instrument of monetary policy. However, monetary policy rules in the literature do not account for such constraints. This paper derives an augmented interest rate rule in which the response of the interest rate to expected inflation changes with the level of debttoGDP ratio. In particular, the interest rate response of the central bank towards an increase in expected inflation falls as debts increase beyond a certain threshold level. We estimate this threshold level for Canada and find traces of evidence of its monetary policy having been constrained by debt during its inflationtargeting regime of the