Do we really know that U.S. monetary policy was destabilizing in the 1970s?

نویسندگان

چکیده

The paper re-examines whether the Federal Reserve’s monetary policy was a source of instability during Great Inflation by estimating sticky-price model with positive trend inflation, commodity price shocks and sluggish real wages. Our estimation provides empirical evidence for substantial wage rigidity finds that Reserve responded aggressively to inflation but negligibly output gap. In presence non-trivial imperfections well-identified price-shocks, U.S. data prefers determinate version New Keynesian model: policy-induced indeterminacy sunspots were not causes macroeconomic pre-Volcker era. However, had in Seventies followed rule Volcker-Greenspan-Bernanke period, volatility would have been lower one third.

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ژورنال

عنوان ژورنال: European Economic Review

سال: 2021

ISSN: ['1873-572X', '0014-2921']

DOI: https://doi.org/10.1016/j.euroecorev.2020.103615