Abstract

ABSTRACT. A multivariate model, identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances, is confronted with US data since 1959. The best fit is with a model that allows time variation in structural disturbance variances only. Among models that allow for changes in equation coefficients also, the best fit is for a model that allows coefficients to change only in the monetary policy rule. That model allows switching among three main regimes and one rarely and briefly occurring regime. The three main regimes correspond roughly to periods when most observers believe that monetary policy actually differed, and the differences in policy behavior are substantively interesting, though statistically ill-determined. The estimates imply monetary targeting was central in the early 80’s, but also important sporadically in the 70’s. The changes in regime were essential neither to the rise in inflation in the 70’s nor to its decline in the 80’s. I. THE DEBATE OVER MONETARY POLICY CHANGE In an influential paper, Clarida, Galí and Gertler 2000 (CGG) presented evidence that US monetary policy changed between the 1970’s and the 1980’s, indeed that in the 70’s

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