Modest Policy Interventions / Eric M. Leeper, Tao Zha.

Format:

Book

Author/Creator:

Leeper, Eric M.

Contributor:

National Bureau of Economic Research.

Zha, Tao.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9192.

NBER working paper series no. w9192

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

We present a framework for computing and evaluating linear projections of macro variables conditional on hypothetical paths of monetary policy. A modest policy intervention is a change in policy that does not significantly shift agents' beliefs about policy regime and does not generate quantitatively important expectations-formation effects of the kind Lucas (1976) emphasizes. The framework is applied to an econometric model of U.S. postwar monetary policy behavior. It finds that a rich class of interventions routinely considered by the Federal Reserve are modest and their impacts can be reliably forecasted by an accurately identified linear model. Moreover, modest interventions can matter: they may shift the projected paths and probability distributions of macro variables in economically meaningful ways.

Notes:

Print version record

September 2002.