Activist Stabilization Policy and Inflation

Topics:
Inflation,
Quantitative Analysis
Tags:
Center For Financial Studies,
Currency & Foreign Exchange,
Finance,
Inflation,
Policy
Source:
Center for Financial Studies

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Overview: A number of recent studies have suggested that activist stabilization policy rules responding to inflation and the output gap can attain simultaneously a low and stable rate of inflation as well as a high degree of economic stability. This paper demonstrates that the policy settings that would have been suggested by this rule during the 1970s, based on real-time data published by the U.S. Commerce Department, do not greatly differ from actual policy during this period. To the extent macroeconomic outcomes during this period are considered unfavorable, this raises questions regarding the usefulness of this strategy for monetary policy. To the extent the Taylor rule is believed to provide a reasonable guide to monetary policy, this finding raises questions regarding earlier critiques of monetary policy during the 1970s. Read the article to know about the Taylor Rule.

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Format: PDF | Size: 201KB | Date: Nov 2002 | Pages: 30

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