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How robust is the Fed reaction function to changes in the output-gap specification?

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  • David Vera

Abstract

Using alternative measures of the output gap, we estimate a forward-looking monetary policy reaction function, similar to those estimated by Clarida et al. (1998, 2000), for Greenspan's period as a chairman of the Board of Governors of the US Federal Reserve System. We are able to show that the reaction function that considers an output gap based on the industrial production index instead of the unemployment rate better captures the behaviour of the Federal Reserve during Greenspan's period.

Suggested Citation

  • David Vera, 2009. "How robust is the Fed reaction function to changes in the output-gap specification?," Applied Economics, Taylor & Francis Journals, vol. 43(9), pages 1059-1065.
    • Handle: RePEc:taf:applec:v:43:y:2009:i:9:p:1059-1065
    DOI: 10.1080/00036840802600236
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    References listed on IDEAS

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    Cited by:

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    2. Paradiso, Antonio & Rao, B. Bhaskara, 2011. "The effects of Minsky moment and stock prices on the US Taylor Rule," MPRA Paper 27840, University Library of Munich, Germany.

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