How forward-looking is the fed? Direct estimates from a ‘Calvo-type’ rule

• Autor(es): Gabriel, Vasco J. ; Levine, Paul ; Spencer, Christopher
• Data: 2008
• Identificador Persistente: http://hdl.handle.net/1822/11685
• Origem: RepositóriUM - Universidade do Minho
• Assunto(s): Calvo-type interest rules; Inflation forecast based rules; GMM; Indeterminacy
• Tipo de Documento: Research paper
• Idioma: Inglês

Descrição

We estimate an alternative type of monetary policy rule, termed Calvo rule, according to which the central bank is assumed to target a discounted infinite sum of future expected inflation. Compared to conventional inflation forecast-based rules, which are typically of the Taylor-type with discrete forward looking horizons, this class of rule is less prone to the problem of indeterminacy. Parameter estimates obtained from GMM estimation provide support for Calvo-type rules, suggesting that the Federal Reserve targeted a mean forward horizon of between 4 and 8 quarters.