Economics, Econometrics and Finance
4 years ago

Discovering Hidden Patterns: How Fed's Policy Impacts Inflation Over Time

Federal Reserve Bank of San Francisco, Working Paper Series
Learning About a Shift in Trend Output: Implications for Monetary Policy and Inflation
Kevin J. Lansing

Paper Summary

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The article explores how the Federal Reserve estimates potential output and its impact on monetary policy and inflation. By analyzing shifts in U.S. potential output growth rates in the 1970s and 1990s, the study shows that the Fed's policy rules can affect trend inflation. The research suggests that identifying the Fed's policy rule using final data can create misleading impressions of interest rate smoothing behavior.