Monetary Policy in the Greenspan Era: A Time Series Analysis of Rules vs. Discretion* |
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Authors: | Anders Møller Christensen Heino Bohn Nielsen |
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Affiliation: | 1. Economics Department, Danmarks Nationalbank, Copenhagen K, Denmark (e‐mail: amc@nationalbanken.dk);2. Department of Economics, University of Copenhagen, Copenhagen K, Denmark (e‐mail: heino.bohn.nielsen@econ.ku.dk) |
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Abstract: | 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. |
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Keywords: | C32 E52 |
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