The Greenbook and U.S. Monetary Policy

Author/Editor:

Robert Tchaidze

Publication Date:

November 1, 2004

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Although very attractive both theoretically and empirically, Taylor rules imply mechanical responses by the policy variable (interest rate) to fundamental ones (inflation and output gap). This study looks for empirical evidence of a more sophisticated monetary policy, one which takes into account expected future developments. An important piece of information added is the "Greenbook" forecast series, calculated by the Federal Reserve staff and which allow evaluation of expected inflation shocks. These shocks are significant in the estimated Taylor rule, confirming that policymaking is forward looking. This paper also demonstrates that a simple Taylor rule may be a misspecification if policymakers have in mind a timevarying inflation target.

Series:

Working Paper No. 2004/213

Subject:

Financial services Inflation Inflation targeting Monetary policy Output gap Prices Production Real interest rates

English

Publication Date:

November 1, 2004

ISBN/ISSN:

9781451874976/1018-5941

Stock No:

WPIEA2132004

Pages:

23

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