Quantifying the Fed’s Objective

30 Pages Posted: 13 Feb 2020

See all articles by Shengliang Ou

Shengliang Ou

Shanghai University of Finance and Economics

Donghai Zhang

Institute for Macroeconomics and Econometrics - University of Bonn

Date Written: January 20, 2020

Abstract

The Federal Reserve’s objective, namely the dovish stance, is often blamed for the Great Inflation. A popular proxy for the former is constructed based on the inflation coefficients in estimated Taylor rules. However, for a welfare-optimizing central bank, the estimated Taylor coefficients are not sufficient to infer its underlying preference. To reassess this view, we quantify the Fed’s objective — the targeting rule, relying on a conditional estimator that is free of the classical simultaneity problem. In contrast to what is implied by estimating a Taylor rule, we find a stable targeting rule around the pre- and post-Volcker periods.

Keywords: Targeting rule, Central Bank’s Preference, SVAR, Sign Restrictions, Great Inflation, Great moderation

JEL Classification: E31, E32, E52, E58, E65

Suggested Citation

Ou, Shengliang and Zhang, Donghai, Quantifying the Fed’s Objective (January 20, 2020). Available at SSRN: https://ssrn.com/abstract=3522455 or http://dx.doi.org/10.2139/ssrn.3522455

Shengliang Ou

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Donghai Zhang (Contact Author)

Institute for Macroeconomics and Econometrics - University of Bonn ( email )

Bonn
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
19
Abstract Views
197
PlumX Metrics