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Estimating the Implicit Inflation Target An Application to U.S. Monetary Policy

This paper proposes a new method of estimating the Taylor rule with a time-varying implicit inflation target and a time-varying natural rate of interest. The inflation target and the natural rate are modeled as random walks and are estimated using maximum likelihood and the Kalman filter. I apply th...

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Bibliographic Details
Main Author: Leigh, Daniel
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2005
Series:IMF Working Papers
Subjects:
Inflation
Output Gap
Monetary Economics
Inflation Targeting
Deflation
Disinflation
Production; Economic Theory
Estimation
Macroeconomics: Production
Price Level
Econometric Models
Prices
Macroeconomics
Monetary Policy
Estimation Techniques
Econometrics
Econometrics & Economic Statistics
Money And Monetary Policy
Production And Operations Management
United States
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:This paper proposes a new method of estimating the Taylor rule with a time-varying implicit inflation target and a time-varying natural rate of interest. The inflation target and the natural rate are modeled as random walks and are estimated using maximum likelihood and the Kalman filter. I apply this method to U.S. monetary policy over the past 25 years and find considerable time variation in the implicit target, confirming hypotheses about "opportunistic disinflation" and the recent "deflation scare."
Physical Description:24 pages
ISBN:9781451860962

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