Macroeconomic Regimes

55 Pages Posted: 26 May 2011 Last revised: 23 Jun 2015

See all articles by Lieven Baele

Lieven Baele

Tilburg University - Department of Finance

Geert Bekaert

Columbia Business School - Finance and Economics

Seonghoon Cho

School of Economics, Yonsei University

Koen Inghelbrecht

Ghent University - Department of Economics

Antonio Moreno

School of Economics and Business, University of Navarra

Multiple version iconThere are 3 versions of this paper

Date Written: July 2014

Abstract

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.

Keywords: Monetary policy, regime-switching, survey expectations, New-Keynesian models, Great Moderation, macroeconomic volatility, Phillips Curve, Determinacy

JEL Classification: E31, E32, E52, E58, C42, C53

Suggested Citation

Baele, Lieven and Bekaert, Geert and Cho, Seonghoon and Inghelbrecht, Koen and Moreno, Antonio, Macroeconomic Regimes (July 2014). Journal of Monetary Economics, Vol. 70, pp. 51-71, 2015. Available at SSRN: https://ssrn.com/abstract=1845483 or http://dx.doi.org/10.2139/ssrn.1845483

Lieven Baele

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 3257 (Phone)
+31 13 466 2875 (Fax)

Geert Bekaert (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Seonghoon Cho

School of Economics, Yonsei University ( email )

Yonsei University
Seoul
Korea
82-2-2123-2470 (Phone)
82-2-393-1158 (Fax)

HOME PAGE: http://web.yonsei.ac.kr/sc719/index.htm

Koen Inghelbrecht

Ghent University - Department of Economics ( email )

Sint-Pietersplein 5
Ghent, B-9000
Belgium
+32 9 264 89 77 (Phone)

HOME PAGE: http://users.ugent.be/~kjinghel/

Antonio Moreno

School of Economics and Business, University of Navarra ( email )

Ed. Amigos
Pamplona, Navarra 31009
Spain

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