Technology Shocks and Monetary Policy: Assessing the Fed's Performance / Jordi Gali, J. David Lopez-Salido, Javier Valles.

Format:

Book

Author/Creator:

Gali, Jordi.

Contributor:

National Bureau of Economic Research.

Lopez-Salido, J. David.

Valles, Javier.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8768.

NBER working paper series no. w8768

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Technology Shocks and Monetary Policy

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

The purpose of the present paper is twofold. First, we characterize the Fed's systematic response to technology shocks and its implications for U.S. output, hours and inflation. Second, we evaluate the extent to which those responses can be accounted for by a simple monetary policy rule (including the optimal one) in the context of a standard business cycle model with sticky prices. Our main results can be described as follows: First, we detect significant differences across periods in the response of the economy (as well as the Fed's) to a technology shock. Second, the Fed's response to a technology shock in the Volcker-Greenspan period is consistent with an optimal monetary policy rule. Third, in the pre-Volcker period the Fed's policy tended to over stabilize output at the cost of generating excessive inflation volatility. Our evidence reinforces recent results in the literature suggesting an improvement in the Fed's performance.

Notes:

Print version record

February 2002.