The Greenbook and U.S. Monetary Policy

November 1, 2004

Preview Citation

Format: Chicago

Robert Tchaidze. The Greenbook and U.S. Monetary Policy, (USA: International Monetary Fund, 2004) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Although very attractive both theoretically and empirically, Taylor rules imply mechanical responses by the policy variable (interest rate) to fundamental ones (inflation and output gap). This study looks for empirical evidence of a more sophisticated monetary policy, one which takes into account expected future developments. An important piece of information added is the "Greenbook" forecast series, calculated by the Federal Reserve staff and which allow evaluation of expected inflation shocks. These shocks are significant in the estimated Taylor rule, confirming that policymaking is forward looking. This paper also demonstrates that a simple Taylor rule may be a misspecification if policymakers have in mind a timevarying inflation target.

Subject: Financial services, Inflation, Inflation targeting, Monetary policy, Output gap, Prices, Production, Real interest rates

Keywords: Inflation, Inflation response, Inflation shock, Inflation targeting, Lags-and-forecasts output gap estimate, Middle East, Monetary policy, Output gap, Output gap response, Output gap shock, Real interest rates, Real-time data, Taylor rule, WP

Publication Details

Pages:

23
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/213
Stock No:

WPIEA2132004
ISBN:

9781451874976
ISSN:

1018-5941

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