Noisy Information, Interest Rate Shocks and the Great Moderation

Konferenzbeitrag

In this paper we quantitatively evaluate the hypothesis that the Great Moderation is partly the result of a less activist monetary policy. We simulate a New Keynesian model where the central bank can only observe a noisy estimate of the output gap and find that the less pronounced reaction of the Federal Reserve to output gap fluctuations since 1979 can account for half of the reduction in the standard deviation of GDP associated with the Great Moderation. Our simulations are consistent with the empirically documented smaller magnitude and impact of interest rate shocks since the early 1980s.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Monetary Policy Rules ; No. A16-V2

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Monetary Policy ; Central Banks and Their Policies
• Subject: Great Moderation ; New Keynesian Model ; Noisy Data

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Scharler, Johann ; Mayer, Eric
• Event: Veröffentlichung
• (who): Verein für Socialpolitik
• (where): Frankfurt a. M.
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/37301
• Last update: 10.03.2025, 11:44 AM CET