Finance and Economics Discussion Series (FEDS)
January 2002
Monetary Policy Rules and the Great Inflation
Athanasios Orphanides
Abstract:
The nature of monetary policy during the 1970s is evaluated through the lens of a forward-looking Taylor rule based on perceptions regarding the outlook for inflation and unemployment at the time policy decisions were made. The evidence suggests that policy during the 1970s was essentially indistinguishable from a systematic, activist, forward-looking approach such as is often identified with good policy advice in theoretical and econometric policy evaluation research. This points to the unpleasant possibility that the policy errors of the 1970s occured despite the use of a seemingly desirable policy approach. Though the resulting activist policies could have appeared highly promising, they proved, in retrospect, counterproductive.
Keywords: Monetary policy rules, inflation, unemployment, Greenbook forecasts
PDF: Full Paper
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