| Title | Monetary Policy, Inflation And Unemployment: In Defense Of The Federal Reserve |
|---|---|
| ID_Doc | 74077 |
| Authors | Groshenny, N |
| Title | Monetary Policy, Inflation And Unemployment: In Defense Of The Federal Reserve |
| Year | 2013 |
| Published | Macroeconomic Dynamics, 17, 6 |
| Abstract | To what extent did deviations from the Taylor rule between 2002 and 2006 help to promote price stability and maximum sustainable employment? To address that question, I estimate a New Keynesian model with unemployment and perform a counterfactual experiment where monetary policy strictly follows a Taylor rule over the period 2002:Q1-2006:Q4. I find that such a policy would have generated a sizeable increase in unemployment and resulted in an undesirably low rate of inflation. Around mid-2004, when the counterfactual deviates the most from the actual series, the model indicates that the probability of an unemployment rate greater than 8% would have been as high as 80%, whereas the probability of an inflation rate above 1% would have been close to zero. |
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