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Monetary Policy in the Greenspan Era: A Time Series Analysis of Rules vs. Discretion *
Author(s) -
Christensen Anders Møller,
Nielsen Heino Bohn
Publication year - 2009
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/j.1468-0084.2008.00517.x
Subject(s) - federal funds , economics , monetary policy , discretion , cointegration , inflation (cosmology) , monetary economics , unemployment rate , bond , taylor rule , interest rate , unemployment , econometrics , macroeconomics , central bank , finance , political science , physics , theoretical physics , law
Relationships between the Federal funds rate, unemployment, inflation and the long‐term bond rate are investigated with cointegration techniques. We find a stable long‐term relationship between the Federal funds rate, unemployment and the bond rate. This relationship is interpretable as a policy target because deviations are corrected via the Federal funds rate. Deviations of the actual Federal funds rate from the estimated target give simple indications of discretionary monetary policy, and the larger deviations relate to special episodes outside the current information set. A more traditional Taylor‐type target, where inflation appears instead of the bond rate, does not seem congruent with the data.