Tilburg University - Department of Finance
Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)
School of Economics, Yonsei University
University College of Ghent - Department of Finance
University of Navarra - School of Economics
December 1, 2011
We estimate a New-Keynesian macro model accommodating regime-switching behavior in monetary policy and in macro shocks. Key to our estimation strategy is the use of survey-based expectations for inflation and output. Output and inflation shocks shift to the low volatility regime around 1985 and 1990, respectively. However, we also identify multiple shifts between accommodating and active monetary policy regimes, which play an as important role as shock volatility in driving the volatility of the macro variables. We provide new estimates of the onset and demise of the Great Moderation and quantify the relative role played by macro-shocks and monetary policy. The estimated rational expectations model exhibits indeterminacy in the mean square stability sense, mainly because monetary policy is excessively passive.
Number of Pages in PDF File: 54
Keywords: Monetary policy, regime-switching, survey expectations, New-Keynesian models, Great Moderation, macroeconomic volatility, Phillips Curve, Determinacy
JEL Classification: E31, E32, E52, E58, C42, C53working papers series
Date posted: May 26, 2011 ; Last revised: March 31, 2012
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo4 in 1.157 seconds