Can we Identify the Fed' s Preferences?
Résumé
A pre-test of Ramsey optimal policy versus time-consistent policy rejects time-consistent policy and (optimal) simple rule for the U.S. Fed during 1960 to 2006, assuming the reference new-Keynesian Phillips curve transmission mechanism with auto-correlated cost-push shock. The number of reduced form parameters is larger with Ramsey optimal policy than with time-consistent policy although the number of structural parameters, including central bank preferences, is the same. The new-Keynesian Phillips curve model is under-identi…ed with Ramsey optimal policy (one identifying equation missing) and hence under-identi…ed for time-consistent policy (three identifying equations missing). Estimating a structural VAR for Ramsey optimal policy during Volcker-Greenspan period, the new-Keynesian Phillips curve slope parameter and the Fed's preferences (weight of the volatility of the output gap) are not statistically di¤erent from zero at the 5% level. JEL classi…cation numbers: C61, C62, E43, E44, E47, E52, E58.
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2017 Chatelain Ralf WP NKPC commitment vs time-consistent With Figures.pdf (545.22 Ko)
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