Macroeconomic Regimes

54 Pages Posted: 31 May 2011

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: May 2011

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. We identify accommodating monetary policy before 1980, with activist monetary policy prevailing most but not 100% of the time thereafter. Systematic monetary policy switched to the activist regime in the 2000-2005 period through an aggressive lowering of interest rates. Discretionary policy spells became less frequent since 1985, but the Volcker period is identified as a discretionary period. Output shocks shift to the low volatility regime around 1985 whereas inflation shocks do so only around 1990, suggesting active monetary policy may have played role in anchoring inflation expectations. Shocks and policy regimes jointly drive the volatility of the macro variables. We provide new estimates of the onset and demise of the Great Moderation and the relative role played by macro-shocks and monetary policy.

Suggested Citation

Baele, Lieven and Bekaert, Geert and Cho, Seonghoon and Inghelbrecht, Koen and Moreno, Antonio, Macroeconomic Regimes (May 2011). NBER Working Paper No. w17090. Available at SSRN: https://ssrn.com/abstract=1854192

Lieven Baele (Contact Author)

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

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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