Predicting the effects of Federal Reserve policy in a sticky-price model
Subtitle: an analytical approach
By: Ellen R. McGrattan.
Contributors: Federal Reserve Bank of Minneapolis. Research Dept.
Series: Working paper / Federal Reserve Bank of Minneapolis, Research Dept. ;; 598; Working paper (Federal Reserve Bank of Minneapolis : Online) ;; 598.
Publisher: Federal Reserve Bank of Minneapolis
Published: 1999
Place of publication: [Minneapolis, Minn.]
Language: eng
Format: Electronic resource
Subjects: Monetary policy -- United States.; Prices -- Mathematical models.
Description: "In this paper, I characterize equilibria for a sticky-price model in which Federal Reserve policy is an interest-rate rule similar to that described in Taylor (1993).  For standard preferences and technologies used in the literature, the model predicts that the nominal interest rate is negatively serially correlated, and that shocks to interest rates imply a potentially large but short-lived response in output.  Shocks to government spending and technology lead to persistent changes in output but the percentage change in output is predicted to be smaller than the percentage changes in spending or technology.  I compare the model's predictions to data using innovations backed out from estimated processes for interest rates, government spending, and technology shocks.  These comparisons confirm the theoretical findings.  In response to observed changes in government spending and technology, the model predicts a path for output that is much smoother than the data and much smoother than that predicted by non-sticky price models"--Federal Reserve Bank of Minneapolis web site.
Notes: Includes bibliographical references.
Title from abstract page as viewed on 1/5/2005.
"December 1999."
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.