Historical Monetary Policy Analysis and the Taylor Rule

Does the Greenspan era provide evidence on leadership in the FOMC?

“…In the reaction functions, we replace the output gap, which is traditionally used when estimating Taylor-type rules (see Taylor, 1993;Orphanides, 2003 and, with an unemployment gap (similar to Blinder and Reis, 2005;Orphanides and Wieland, 2008). This is not strictly necessary but has several advantages for the purpose of the present analysis.…”

Maintaining low inflation: Money, interest rates, and policy stance

“…4 Similar issues arise when the "natural growth rule" (NGR), i.e. ∆i = 0.5 (π − π * ) + 0.5 (∆y − ∆y * ), discussed by Orphanides (2003) is used to evaluate policy stance. The 3-month T-bill rate follows the rule relatively well over the 1980s and 1990s while inflation was most of the time above target.…”

“…As argued by Orphanides (2003), given our limited knowledge of economic dynamics and the resulting fact that various models with different implications for inflation dynamics coexist in the literature, evaluating stance measures based on historical macroeconomic developments for practical monetary policy purposes requires an analysis that is not dependent on specific models. In addition, the stylized facts presented in this paper suggest inherent instability of reduced-form estimated inflation equations.…”

Perhaps the FOMC Did What it Said it Did: An Alternative Interpretation of the Great Inflation

“…In a series of important papers, Orphanides (2003aOrphanides ( , 2003bOrphanides ( , 2004 suggests policy responses to inflation and the output gap, such as c 2 and c 3 in equation (1), were consistent with stable policy responses in the 1970s. However, lower levels of the policy rate were induced by substantial and persistent overestimation by the central bank of the natural rate for output,ȳ t .…”