Abstract
What caused the U.S. economy's shift from the Great Inflation era to the Great Moderation era? A large literature shows that the shift was achieved by the change in monetary policy from a passive to an active response to inflation. However, Coibion and Gorodnichenko (2011) attribute the shift to a fall in trend inflation along with the policy change, based on a solely estimated Taylor rule and a calibrated staggered-price model. We estimate the Taylor rule and the staggered-price model jointly and demonstrate that the change in monetary policy responses to inflation and other variables suffices for explaining the shift.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have