DP5467 Monetary Policy and the Evolution of the US Economy

Author(s): Fabio Canova
Publication Date: January 2006
Keyword(s): Bayesian methods, great inflation, monetary policy, New Keynesian model
JEL(s): C53, E47, E52
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5467

This paper investigates the relationship between monetary policy and the changes experienced by the US economy using a small scale New Keynesian model. The model is estimated with Bayesian techniques and the stability of policy parameter estimates and of the transmission of policy shocks examined. The model fits well the data and produces forecasts comparable or superior to those of alternative specifications. The parameters of the policy rule, the variance and the transmission of policy shocks have been remarkably stable. The parameters of the Phillips curve and of the Euler equations are varying.