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Stop‐go monetary policy

journal contribution
posted on 25.04.2019, 12:39 by Henry W. Chappell, Mark N. Harris, Rob Roy McGregor, Christopher Spencer
We propose and estimate several discrete choice models of monetary policy decision-making that feature time-varying inertia. The models permit us to account for three stylized facts characterizing monetary policymaking in the United States: (1) target interest rates are gradually adjusted in small discrete movements, (2) there are some long stretches of time in which rates are repeatedly moved, and (3) there are other long stretches in which the policy rate does not change. Our models are used to account for the Fed’s failure to adopt promptly an easier policy stance during the recession of 2001. They are also used to explain delay in tightening the policy stance during the 2003-2006 period that featured a bubble in house prices and was followed by a financial crisis in 2008.

Funding

Spencer thanks the School of Business and Economics for financially supporting this research. Harris kindly acknowledges financial support from the Australia Research Council.

History

School

  • Business and Economics

Department

  • Economics

Published in

Economic Inquiry

Volume

57

Issue

3

Pages

1698-1717

Citation

CHAPPELL, H.W. .... et al., 2019. Stop‐go monetary policy. Economic Inquiry, 57 (3), pp.1698-1717.

Publisher

© Western Economic Association International. Published by Wiley

Version

AM (Accepted Manuscript)

Publisher statement

This is the peer reviewed version of the following article: CHAPPELL, H.W. .... et al., 2019. Stop‐go monetary policy. Economic Inquiry, 57 (3), pp.1698-1717, which has been published in final form at https://doi.org/10.1111/ecin.12787. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions

Acceptance date

07/03/2019

Publication date

2019-04-10

Copyright date

2019

ISSN

0095-2583

eISSN

1465-7295

Language

en

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