Dynamic Limited Dependent Variable Modeling and U.S. Monetary PolicyJournal of Money, Credit and Banking, 2011, vol. 43, issue 2‐3, 519-534 Abstract: I estimate a forward‐looking, dynamic, discrete‐choice monetary policy reaction function for the U.S. economy that accounts for the fact that there are substantial restrictions in the period‐to‐period changes of the policy instrument. I find a substantial contrast between the periods before and after Paul Volcker's appointment as Fed chairman in 1979, both in terms of the Fed's response to expected inflation and in terms of its response to the (perceived) output gap. In the pre‐Volcker era, the Fed's response to inflation was substantially weaker than in the Volcker–Greenspan era; conversely, the Fed seems to have been more responsive to (inaccurate real‐time estimates of) the output gap in the pre‐Volcker era than later. These results, which carry through a series of extensions and robustness checks, provide support for the “policy mistakes” hypothesis as an explanation of the stark contrast in U.S. macroeconomic performance between the pre‐Volcker and the Volcker–Greenspan periods. Date: 2011 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:43:y:2011:i:2-3:p:519-534 Access Statistics for this article Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West More articles in Journal of Money, Credit and Banking from Blackwell Publishing |
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