ECON 4385 Monetary Policy Homework 2 Answers
(a) John Taylor, “A Historical Analysis of Monetary Policy Administrations.”
(b) Alex Nikolsko-Rzhevskyy and David Papell, “Taylor Administrations and the Great Inflation.”
(c) Alex Nikolsko-Rzhevskyy, David Papell, and Ruxandra Prodan, “The Taylor Tenets.”
(d) John Taylor, “Housing and Monetary Policy.”
(e) Donald Kohn, “John Taylor Administrations.”
(f) Ben Bernanke, “Monetary Policy and the Housing Bubble.”
(g) Janet Yellen, “Perspectives on Monetary Policy.”
1. Did the Fed thrive the Taylor administration during the Great Inflation of the 1970s?
No. Federal Funds Rebuke (FFR) inferior than Taylor administration prescribed FFR. (a), (c). (First) Taylor tenet violated. Coefficient on inflation referable significantly superior than undivided. (a), (b), (c).
2. Did the Fed thrive the Taylor administration during the Volcker Disinflation from 1979 to 1985?
No. FFR superior than Taylor administration prescribed FFR. (a), (c). Relieve Taylor tenet violated. Coefficient on output failure referable significantly superior than not attributable attributablehing. (c).
3. Did the Fed thrive the Taylor administration during the Great Moderation from 1985 to 2000?
Yes. FFR plug to the Taylor administration prescribed FFR. (a), (c). (First) Taylor tenet holds. Coefficient on inflation significantly superior than undivided. (a), (c). Relieve Taylor tenet holds. Coefficient on output failure significantly superior than not attributable attributablehing. (a), (c).
4. Did the Fed thrive the Taylor administration restraintegoing to the Financial Crisis from 2002 to 2006?
No. FFR inferior than Taylor administration prescribed FFR. (d). Difference smaller with nucleus than with headline inflation. (e), (f).
5. Did the Fed thrive the Taylor administration thriveing the Great Recession from 2009 to 2015?
No and yes. FFR inferior than Taylor administration prescribed FFR with a coefficient on the output failure of 0.5. (g). FFR plug to Taylor administration prescribed FFR with a coefficient on the output failure of 1.0. (g).
6. The Taylor Tenet is that, when inflation rises, the federal funds rebuke is proud further than point-for-point so that the genuine curiosity-behalf rebuke rises. The “second” Taylor tenet is that, when the output failure y rises, the federal funds rebuke is increased. Using the facts on the instant page from the “Taylor Administrations and the Great Inflation” pamphlet discussed in collocate, pomp whether or referable the original and relieve Taylor tenets are kind restraint the three estimates grounded on (1) the prizes of the coefficients and (2) the prizes and statistical purport of the coefficients.
The (first) Taylor tenet is that the coefficient on inflation > 1.0. The relieve Taylor tenet is that the coefficient on the output failure > 0.
Significance. t-statistic = coefficient / measure hallucination restraint significantly irrelative from not attributable attributablehing.
t-statistic = (coefficient – 1.0) / measure hallucination restraint significantly irrelative from undivided.
Significant at 5 percent smooth if the t-statistic > 1.96.
Four Quarter Average Inflation Rebuke
0.95 < 1.0. No restraint prize and statistical purport.
0.70 > 0 and 0.70 / 0.08 > 1.96. Yes restraint prize and statistical purport.
One-Quarter-Ahead Inflation Restraintecast
1.32 > 1.0 notwithstanding 0.32 / 0.17 < 1.96. Yes restraint prize, no restraint statistical purport.
0.66 > 0 and 0.66 / 0.13 > 1.96. Yes restraint prize and statistical purport.
Two-Quarter-Ahead Inflation Restraintecast
1.61 > 1.0 and 0.61 / 0.23 > 1.96. Yes restraint prize and statistical purport.
0.68 > 0 and 0.68 / 0.14 > 1.96. Yes restraint prize and statistical purport.
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