Technology Shocks and Monetary Policy: Assessing the Fed's Performance

Jordi Galí, David Lopez-Salido and Javier Valles

No 8768, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The purpose of the present paper is twofold. First, we characterize the Fed's systematic response to technology shocks and its implications for U.S. output, hours and inflation. Second, we evaluate the extent to which those responses can be accounted for by a simple monetary policy rule (including the optimal one) in the context of a standard business cycle model with sticky prices. Our main results can be described as follows: First, we detect significant differences across periods in the response of the economy (as well as the Fed's) to a technology shock. Second, the Fed's response to a technology shock in the Volcker-Greenspan period is consistent with an optimal monetary policy rule. Third, in the pre-Volcker period the Fed's policy tended to over stabilize output at the cost of generating excessive inflation volatility. Our evidence reinforces recent results in the literature suggesting an improvement in the Fed's performance.

JEL-codes: E31 E58 (search for similar items in EconPapers)
Date: 2002-02
New Economics Papers: this item is included in nep-cba, nep-dge, nep-ino, nep-mon and nep-pke
Note: EFG ME
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Citations: View citations in EconPapers (56)

Published as Gali, Jordi, J. David Lopez-Salido and Javier Valles. "Technology Shocks And Monetary Policy: Assessing The Fed's Performance," Journal of Monetary Economics, 2003, v50(4,May), 723-743.

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Journal Article: Technology shocks and monetary policy: assessing the Fed's performance (2003)
Working Paper: Technology Shocks and Monetary Policy: Assessing the Fed's Performance (2002)
Working Paper: Technology Shocks and Monetary policy: Assessing the Fed's Performance (2000)
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