Revisiting the Great Moderation: policy or luck?

Minford, Anthony Patrick Leslie ORCID: https://orcid.org/0000-0003-2499-935X, Ou, Zhirong ORCID: https://orcid.org/0000-0002-4610-7183 and Wickens, Michael ORCID: https://orcid.org/0000-0002-6862-0674 2015. Revisiting the Great Moderation: policy or luck? Open Economies Review 26 (2) , pp. 197-223. 10.1007/s11079-014-9319-7

Preview

PDF - Accepted Post-Print Version Download (258kB) | Preview

Abstract

We investigate the relative roles of monetary policy and shocks in causing the Great Moderation, using indirect inference where a DSGE model is tested for its ability to mimic a VAR describing the data. A New Keynesian model with a Taylor Rule and one with the Optimal Timeless Rule are both tested. The latter easily dominates, whether calibrated or estimated, implying that the Fed�s policy in the 1970s was neither inadequate nor a cause of indeterminacy; it was both optimal and essentially unchanged during the 1980s. By implication it was largely the reduced shocks that caused the Great Moderation�--among them monetary policy shocks the Fed injected into inflation.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics) Advanced Research Computing @ Cardiff (ARCCA)
Subjects:	H Social Sciences > H Social Sciences (General) H Social Sciences > HB Economic Theory H Social Sciences > HC Economic History and Conditions
Publisher:	Springer Verlag
ISSN:	0923-7992
Date of First Compliant Deposit:	30 March 2016
Last Modified:	27 Nov 2024 16:45
URI:	https://orca.cardiff.ac.uk/id/eprint/66293

Citation Data

Cited 2 times in Scopus. View in Scopus. Powered By Scopus® Data

Actions (repository staff only)

Edit Item