The Fed and the New Economy
Laurence Ball, Robert Tchaidze
This paper seeks to understand the behavior of Greenspan's Federal Reserve in the late 1990s. Some authors suggest that the Fed followed a simple 'Taylor rule,' while others argue that it deviated from such a rule because it recognized that the 'New Economy' permitted an easing of policy. We find that a Taylor rule based on inflation and unemployment does break down in the late 1990s. However, the Fed's behavior appears stable once one accounts for the falling NAIRU of the period. A rule based on inflation and the deviation of unemployment from the NAIRU captures the Fed's behavior through the entire period from 1987 to 2000.
Document Object Identifier (DOI): 10.3386/w8785
Published: Ball, Laurence and Robert R. Tchaidze. "The Fed And The New Economy," American Economic Review, 2002, v92(2,May), 108-115.
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