Monetary Policy in the Greenspan Era: A Time Series Analysis of Rules vs. Discretion

TY - JOUR

T1 - Monetary Policy in the Greenspan Era

T2 - A Time Series Analysis of Rules vs. Discretion

AU - Christensen, Anders Møller

AU - Nielsen, Heino Bohn

N1 - JEL classification: C32, E52

PY - 2009

Y1 - 2009

N2 - Relationships between the Federal funds rate, unemployment, inflation and the long-term bond rate are investigated with cointegration techniques. We find a stable long-term relationship between the Federal funds rate, unemployment and the bond rate. This relationship is interpretable as a policy target because deviations are corrected via the Federal funds rate. Deviations of the actual Federal funds rate from the estimated target give simple indications of discretionary monetary policy, and the larger deviations relate to special episodes outside the current information set. A more traditional Taylor-type target, where inflation appears instead of the bond rate, does not seem congruent with the data.

AB - Relationships between the Federal funds rate, unemployment, inflation and the long-term bond rate are investigated with cointegration techniques. We find a stable long-term relationship between the Federal funds rate, unemployment and the bond rate. This relationship is interpretable as a policy target because deviations are corrected via the Federal funds rate. Deviations of the actual Federal funds rate from the estimated target give simple indications of discretionary monetary policy, and the larger deviations relate to special episodes outside the current information set. A more traditional Taylor-type target, where inflation appears instead of the bond rate, does not seem congruent with the data.

U2 - 10.1111/j.1468-0084.2008.00517.x

DO - 10.1111/j.1468-0084.2008.00517.x

M3 - Journal article

SN - 0305-9049

VL - 71

SP - 69

EP - 89

JO - Oxford Bulletin of Economics and Statistics

JF - Oxford Bulletin of Economics and Statistics

IS - 1

ER -