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US post-war monetary policy and the Great Moderation: was the Fed doing a good job?

Ou, Zhirong ORCID: 2011. US post-war monetary policy and the Great Moderation: was the Fed doing a good job? PhD Thesis, Cardiff University.

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Using indirect inference based on a VAR this thesis confronts the US data from 1972 to 2007 with a standard New Keynesian model in which either an optimal timeless policy or a Taylor rule is assumed prevails. By comparing the models' performance in fitting the dynamics and size of the data, it finds in both the episodes of the Great Acceleration and the Great Moderation that the Fed's underlying behaviour was better understood as the timeless optimum either under standard calibration or under estimation. The implication is that to the final analysis the Great Moderation is a result of improved environment as the volatility of shocks has fallen, rather than one occurred as policy improved. Smaller Fed managerial errors caused the moderation in inflation. Smaller supply shocks caused the moderation in output and smaller demand shocks the moderation in interest rates. In either episode the same model with differing Taylor rules of the standard sorts generally fails to fit the data well. But the optimal timeless rule model could have generated data in which Taylor rule regressions could have been discovered, creating an illusion that the Fed was following such policies and that the improved economy was caused by changed pattern of these.

Item Type: Thesis (PhD)
Status: Unpublished
Schools: Business (Including Economics)
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
ISBN: 9781303196522
Date of First Compliant Deposit: 30 March 2016
Last Modified: 25 Oct 2022 08:44

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