Monetary policy and indeterminacy after the 2001 slump

Firmin Doko Tchatoka, Nicolas Groshenny, Qazi Haque, Mark Weder

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

This paper estimates a New Keynesian model of the U.S. economy over the period following the 2001 slump, a period for which the adequacy of monetary policy is intensely debated. We find that only when measuring inflation with core PCE does monetary policy appear to have been reasonable and sufficiently active to rule out indeterminacy. We then relax the assumption that inflation in the model is measured by a single indicator and re-formulate the artificial economy as a factor model where the theory's concept of inflation is the common factor to the empirical inflation series. CPI and PCE provide better indicators of the latent concept while core PCE is less informative. Finally, we estimate an economy that distinguishes between core and headline inflation rates. This model comfortably rules out indeterminacy.
Original languageEnglish
Pages (from-to)83-95
JournalJournal of Economic Dynamics and Control
Volume82
DOIs
Publication statusPublished - Sep 2017
Externally publishedYes

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