Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory

By Richard Clarida, Jordi Gali and Mark Gertler

In The Quarterly Journal of Economics, February 2000, Vol. 115, No. 1, pp. 147-180

Presented By Derrek Grunfelder-McCrank, Brandon Hinneberg, and Anthony Galston

Key Question Addressed in PaperHow was the role of monetary

policy different pre-1979 and post-1979?

Main FindingsPre-Volcker Era

◦Highly accommodative to expected increases in inflation

Volcker-Greenspan Era◦Responded to higher expected

inflation◦Controlling inflation◦Forward-looking approach

Outline of PresentationBackground InformationDataModelsResultsConclusion

Background Info1960s to 1980s vs. Post-1980sSupply shocks?Change in the role of monetary

policy?Pre-Volcker vs. Volcker-Greenspan

DataQuarterly time series from

1960:1-1996:4

Instrument set

ModelsSimple Forward-Looking Rule

ModelsImplied Real Rate Rule

ModelsInterest Rate Smoothing and

Exogenous Shocks

Models“A comprehensive analysis of the

quantitative properties of the model is beyond the scope of the present paper.” (pg. 169)

A comprehensive analysis of the quantitative properties of the model is beyond the scope of the present presentation.

Results

Results

Results

Results

ConclusionsSimple Forward-Looking Policy

Reaction Function

Significant differences pre-Volcker (pre-1979) and Volcker-Greenspan (post-1979)