{"title":"Quantifying the Federal Reserve’s Objectives Using a Structural Vector Autoregressive Model","authors":"Shengliang Ou, Donghai Zhang","doi":"10.2139/ssrn.3522455","DOIUrl":null,"url":null,"abstract":"The Federal Reserve’s (Fed’s) objective, namely, its dovish stance, is often blamed for the so-called Great Inflation. A popular proxy for the former is constructed using the inflation coefficients in estimated Taylor rules. However, for a welfare-optimizing central bank, the estimated Taylor coefficients are not sufficient for inferring its underlying preference. We quantify Fed’s objective—the targeting rule—relying on a conditional estimator (Galí and Gambetti 2018) that is free of the classical simultaneity problem. We discover that Fed’s targeting rule remained stable during the pre- and post-Volcker periods—the opposite of what is implied through a Taylor rule estimation.","PeriodicalId":10548,"journal":{"name":"Comparative Political Economy: Monetary Policy eJournal","volume":"79 1","pages":""},"PeriodicalIF":0.0000,"publicationDate":"2021-03-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Comparative Political Economy: Monetary Policy eJournal","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/ssrn.3522455","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 0
Abstract
The Federal Reserve’s (Fed’s) objective, namely, its dovish stance, is often blamed for the so-called Great Inflation. A popular proxy for the former is constructed using the inflation coefficients in estimated Taylor rules. However, for a welfare-optimizing central bank, the estimated Taylor coefficients are not sufficient for inferring its underlying preference. We quantify Fed’s objective—the targeting rule—relying on a conditional estimator (Galí and Gambetti 2018) that is free of the classical simultaneity problem. We discover that Fed’s targeting rule remained stable during the pre- and post-Volcker periods—the opposite of what is implied through a Taylor rule estimation.