The Fed and the New Economy

18 Pages Posted: 14 Feb 2002 Last revised: 2 Jan 2023

See all articles by Laurence Ball

Laurence Ball

Johns Hopkins University - Department of Economics; National Bureau of Economic Research (NBER); International Monetary Fund (IMF)

Robert Tchaidze

International Monetary Fund (IMF); International School of Economics at TSU (ISET); Johns Hopkins University - Department of Economics

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Date Written: February 2002

Abstract

This paper seeks to understand the behavior of Greenspan's Federal Reserve in the late 1990s. Some authors suggest that the Fed followed a simple 'Taylor rule,' while others argue that it deviated from such a rule because it recognized that the 'New Economy' permitted an easing of policy. We find that a Taylor rule based on inflation and unemployment does break down in the late 1990s. However, the Fed's behavior appears stable once one accounts for the falling NAIRU of the period. A rule based on inflation and the deviation of unemployment from the NAIRU captures the Fed's behavior through the entire period from 1987 to 2000.

Suggested Citation

Ball, Laurence M. and Tchaidze, Robert, The Fed and the New Economy (February 2002). NBER Working Paper No. w8785, Available at SSRN: https://ssrn.com/abstract=300747

Laurence M. Ball (Contact Author)

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Robert Tchaidze

International Monetary Fund (IMF)

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