publication . Article . 2009

Perhaps the 1970s FOMC did what it said it did

Sharon Kozicki; P.A. Tinsley;
Open Access English
  • Published: 01 Sep 2009
  • Publisher: Elsevier
  • Country: United Kingdom
Briefing forecasts prepared for the Federal Open Market Committee (FOMC) are used to estimate changes in the design of US monetary policy and in the implied policy target for inflation from 1970 through 1997. Both estimated policy rate responses and FOMC transcripts are consistent with intermediate targeting of monetary aggregates throughout the Great Inflation of the 1970s. The unpublished FOMC targets for M1 growth are tabulated. Empirical results support an effective inflation target of roughly 7% in the 1970s and 3% thereafter. A notable difference in the 1970s monetary policies of the US and Germany is the absence of explicit public objectives for US long-r...
free text keywords: ems, Economics and Econometrics, Finance
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42 references, page 1 of 3

1The FOMC is responsible for the actions of U.S. monetary policy through open market operations. 2A sizeable literature explores regression estimates of U.S. policy responses over postwar samples, including Judd and Rudebusch (1998), Taylor (1999), Romer and Romer (2002), and Nelson (2005). 3The number of combinations is calculated as P5 5! i=1 i!(5−i)! = 31. Inconclusive calibration exercises of two competing theories of the Great Inflation are discussed in Collard and Dellas (2004). Surveys of alternative interpretations of U.S. inflation in the 1970s include Velde (2004) and Nelson (2005). Various interpretations were explored in presentations at the NBER's “The Great Inflation Conference” in September 2008.

19Goldfeld (1976) indicates that a representative money demand model of the early 1970s generates larger prediction errors, with an out-of-sample RMSE of 6.3 percentage points from 1974Q1 to 1975Q2.

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