Learning About a Shift in Trend Output: Implications for Monetary Policy and Inflation

Lansing, Kevin J.

doi:10.2139/ssrn.227886

Cited by 32 publications

(40 citation statements)

References 87 publications

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“…This issue was analyzed by Lansing (2002) using a small macroeconomic model of the US economy where the Federal Reserve sets monetary policy according to its perceived output gap in a Taylor rule while it is the actual output gap based on later data vintages which feeds into the model affecting aggregate demand and inflation. Simulations show that important inflation dynamics in the US can be explained by abrupt changes in potential output which the Fed initially mistakes for cyclical factors.…”

Section: Real-time Estimates Of the Output Gap And Monetary Policy MImentioning

confidence: 99%

Data Uncertainty, the Output Gap and Monetary Policy in the United Kingdom

Chamberlin¹

2014

IJEF

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It is now widely accepted that early vintages of GDP data are likely to undergo a series of revisions as more information becomes available to National Statistics Institutions. This, however, creates a trade-off between timeliness and accuracy for data users such as monetary policy-makers. This article investigates the importance of data revisions for the operation of monetary policy in the UK. I find data revisions have been smaller in the last decade and early data vintages provide a relatively good signal of data released at a later date. There is though evidence of cyclicality and structural breaks in the data revision process which should caution data users against assuming data revisions are predictable. I also look at the role of the output gap in the practical implementation of monetary policy through the Taylor rule. While revisions to GDP data account for some of the mismeasurement of the output gap, I conclude that it is a relatively small culprit. The main cause of output gap revisions is due to the difficulty in estimating the level of potential output towards the end of the sample where statistical filter methods are generally unreliable.

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Section: Real-time Estimates Of the Output Gap And Monetary Policy MImentioning

confidence: 99%

Data Uncertainty, the Output Gap and Monetary Policy in the United Kingdom

Chamberlin¹

2014

IJEF

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“…His work suggests that the perceived output gap was quite large during this period, and that this influenced policy appreciably. Lansing (2002) studies the interaction of monetary policy and trend growth changes in a simplified version of Fuhrer and Moore (1995), obtaining a modest increase in inflation in response to a permanent technology shock. Tambalotti (2003) studies the great inflation in a general equilibrium model were the central bank responds to an incorrect measure of the output gap while the private sector is learning.…”

Section: Recent Related Literaturementioning

confidence: 99%

“…Therefore, we do not pursue this approach. 23 Instead, we trace out the average effect more directly by adding a shock with low variance to each equation (7) through (10). 24 These shocks are necessary to allow the recursive estimation we have assumed, but have such small variance that they do not materially affect the transition paths we report below.…”

Section: Calibrationmentioning

confidence: 99%

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Did the great inflation occur despite policymaker commitment to a Taylor rule?

Bullard

Eusepi

2005

Review of Economic Dynamics

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We study the hypothesis that misperceptions of trend productivity growth during the onset of the productivity slowdown in the U.S. caused much of the great inflation of the 1970s. We use the general equilibrium, sticky price framework of Woodford (2003), augmented with learning using the techniques of Evans and Honkapohja (2001). We allow for endogenous investment as well as explicit, exogenous growth in productivity and the labor input. We assume the monetary policymaker is committed to using a Taylortype policy rule. We study how this economy reacts to an unexpected change in the trend productivity growth rate under learning. We find that a substantial portion of the observed increase in inflation during the 1970s can be attributed to this source. JEL Classification Numbers E4, E5.

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“…For example, Orphanides (2001,2003), Lansing (2000), Cukierman and Lippi (2005) have highlighted how the signi…cant misperception of potential output, following the productivity slowdown of the early 1970s, may have contributed to the rise of U.S. in ‡ation.…”

Section: Introductionmentioning

confidence: 99%

Monetary Policy and Potential Output Uncertainty: A Quantitative Assessment

Chiaie

2007

SSRN Journal

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Learning About a Shift in Trend Output: Implications for Monetary Policy and Inflation

Cited by 32 publications

References 87 publications

Data Uncertainty, the Output Gap and Monetary Policy in the United Kingdom

Data Uncertainty, the Output Gap and Monetary Policy in the United Kingdom

Did the great inflation occur despite policymaker commitment to a Taylor rule?

Monetary Policy and Potential Output Uncertainty: A Quantitative Assessment

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