We estimate a New-Keynesian macro model accommodating regime-switching behavior in monetary policy and in macro shocks. Key to our estimation strategy is the use of survey-based expectations for inflation and output. We identify accommodating monetary policy before 1980, with activist monetary policy prevailing most but not 100% of the time thereafter. Systematic monetary policy switched to the activist regime in the 2000-2005 period through an aggressive lowering of interest rates. Discretionary policy spells became less frequent since 1985, but the Volcker period is identified as a discretionary period. Output shocks shift to the low volatility regime around 1985 whereas inflation shocks do so only around 1990, suggesting active monetary policy may have played role in anchoring inflation expectations. Shocks and policy regimes jointly drive the volatility of the macro variables. We provide new estimates of the onset and demise of the Great Moderation and the relative role played by macro-shocks and monetary policy.
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