Monetary-Policy Rules and the Great Inflation

By Athanasios Orphanides. 2002

340 citations recorded by the source corpus.

The nature of monetary policy during the 1970s is evaluated through the lens of a forward-looking Taylor rule based on perceptions regarding the outlook for inflation and unemployment at the time policy decisions were made. The evidence suggests that policy during the 1970s was essentially indistinguishable from a systematic, activist, forward-looking approach such as is often identified with good policy advice in theoretical and econometric policy evaluation research. This points to the unpleasant possibility that the policy errors of the 1970s occurred despite the use of a seemingly desirable policy approach. Though the resulting activist policies could have appeared highly promising, they proved, in retrospect, counterproductive.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/77fd326b8ec252dd11ea98f91551b02f240f4d4e

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Citations in the corpus

Historical monetary policy analysis and the Taylor rule (2003, methodology): “(These rules are similar to the estimated Taylor-style rules in Clarida, Gali and Gertler (1999, 2000), and Orphanides (2001, 2002, 2003).)”
Changes in the Federal Reserve's Inflation Target: Causes and Consequences (2007, result): “Competition drives the finished-goods-producing firm’s profits to zero in equilibrium, determining Pt as Pt = ∙Z 1 0 Pt(i) 1−θtdi ¸1/(1−θt) for all t = 0, 1, 2, ....”
OIL PRICE SHOCKS, SYSTEMATIC MONETARY POLICY, AND THE “GREAT MODERATION” (2009, background): “Because, as emphasized by Barsky and Kilian (2002), Parkin (1993), OIL SHOCKS, MONETARY POLICY, “GREAT MODERATION” 109 Ireland (1999), and Orphanides (2002), among others, monetary policy is another possible explanation for the changes in the behavior or macroeconomic variables, we focus our…”
Using Taylor Rules to Understand European Central Bank Monetary Policy (2007, background): “A general critique to estimated policy rules such as (2) and (3) has been proposed in a sequence of articles by Orphanides (2001a, 2001b, 2002).”
Has U.S. Monetary Policy Changed? Evidence from Drifting Coefficients and Real-Time Data (2006, positive): “Orphanides (2001, 2002, 2003) argues, however, that this evidence, based on ex post data, does not properly account for the information that was actually available to policy makers at the time decisions were made.”
Monetary Policy Rules and Macroeconomic Stability: Some New Evidence (2010, background): “Orphanides (2002) emphasized the implications of using revised rather than real-time data.”
Monetary/Fiscal Policy Mix and Agents’ Beliefs (2017, background): “Orphanides (2002), Primiceri (2006), and Sargent et al. (2006) explain the rise of inflation as the result of the evolution of the central bank’s beliefs about the state or structure of the economy.”
Understanding the flattening Phillips curve (2010, background): “However, whether the Federal Reserve acted sufficiently aggressively to offset inflation in the 1970s is arguable - see Clarida, Gali and Gertler (2000) and Orphanides (2002).”
Using Taylor Rules to Understand ECB Monetary Policy (2003, methodology): “A general critique to estimated policy rules such as (2) and (3) has been proposed in a sequence of articles by Orphanides (2001a, 2001b, 2002).”
Optimal Inflation and the Identification of the Phillips Curve (2019, background): “[1]) brought about by oil supply disruption (Gordon 1977; Blinder 1982) and the Federal Reserve’s inability, unwillingness (DeLong 1997), or miscalculations (Orphanides 2002) in trying to lean against them (falls in et in eq.”
When Does a Central Bank's Balance Sheet Require Fiscal Support? (2015, neutral): “…of the higher real rate of return on future central bank’s revenues and, especially in the high γ case, on future seigniorage, trumps in our simulation the negative effect on q. where the central bank adjusts its reaction function slowly to changes in the real economy (see Orphanides (2002)).”