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Revisiting the Great Moderation: policy or luck?

Minford, Anthony Patrick Leslie, Ou, Zhirong and Wickens, Michael 2015. Revisiting the Great Moderation: policy or luck? Open Economies Review 26 (2) , pp. 197-223. 10.1007/s11079-014-9319-7

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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)
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: 17 Apr 2019 22:08
URI: http://orca.cf.ac.uk/id/eprint/66293

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