Policy regimes, policy shifts, and u.S. Business cycles

• Autores: Saroj Bhattarai, Jae Won Lee, Woong Yong Park
• Localización: The Review of economics and statistics, ISSN 0034-6535, Vol. 98, Nº 5, 2016, págs. 968-983
• Idioma: inglés
• DOI: 10.1162/rest_a_00556
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• Resumen

  • Using an estimated DSGE model with monetary and fiscal policy interactions and allowing for equilibrium indeterminacy, we find that a passive monetary and passive fiscal policy regime prevailed in the pre-Volcker period. This gave rise to self-fulfilling beliefs and unconventional transmission mechanisms of policy shifts: unanticipated increases in interest rates increased inflation and output, while unanticipated increases in lump-sum taxes decreased inflation and output. We show that had the monetary policy regime of the post-Volcker era been in place pre-Volcker, inflation volatility would have been lower by 25% and the rise of inflation in the 1970s would not have occurred. [ABSTRACT FROM AUTHOR]