TY  - JOUR
AU  - Leeper,Eric M.
AU  - Zha,Tao
TI  - Modest Policy Interventions
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9192
PY  - 2002
Y2  - September 2002
UR  - http://www.nber.org/papers/w9192
L1  - http://www.nber.org/papers/w9192.pdf
N1  - Author contact info:
Eric M. Leeper
Department of Economics
304 Wylie Hall
Indiana University
Bloomington, IN  47405
Tel: 812/855-9157
Fax: NA
E-Mail: eleeper@indiana.edu

Tao Zha
Emory University
1602 Fishburne Drive
Atlanta, GA 30322-2240
Tel: 404/723-3254
Fax: 404/727-4639
E-Mail: tzha@emory.edu
AB  - 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.
ER  -