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Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory

Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory. By Richard Clarida , Jordi Gali and Mark Gertler In The Quarterly Journal of Economics, February 2000, Vol. 115, No. 1, pp. 147-180

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Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory

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  1. Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory By Richard Clarida, JordiGali and Mark Gertler In The Quarterly Journal of Economics, February 2000, Vol. 115, No. 1, pp. 147-180 Presented By DerrekGrunfelder-McCrank, Brandon Hinneberg, and Anthony Galston

  2. Key Question Addressed in Paper • How was the role of monetary policy different pre-1979 and post-1979?

  3. Main Findings • Pre-Volcker Era • Highly accommodative to expected increases in inflation • Volcker-Greenspan Era • Responded to higher expected inflation • Controlling inflation • Forward-looking approach

  4. Outline of Presentation • Background Information • Data • Models • Results • Conclusion

  5. Background Info • 1960s to 1980s vs. Post-1980s • Supply shocks? • Change in the role of monetary policy? • Pre-Volcker vs. Volcker-Greenspan

  6. Data • Quarterly time series from 1960:1-1996:4 • Instrument set

  7. Models • Simple Forward-Looking Rule

  8. Models • Implied Real Rate Rule

  9. Models • Interest Rate Smoothing and Exogenous Shocks

  10. Models • “A comprehensive analysis of the quantitative properties of the model is beyond the scope of the present paper.” (pg. 169) • A comprehensive analysis of the quantitative properties of the model is beyond the scope of the present presentation.

  11. Results

  12. Results

  13. Results

  14. Results

  15. Conclusions • Simple Forward-Looking Policy Reaction Function • Significant differences pre-Volcker (pre-1979) and Volcker-Greenspan (post-1979)

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