This paper estimates and evaluates monetary policy rules within the context of a structural open economy macroeconomic model of the United States under flexible exchange rates. The major result is that a monetary policy rule which stabilizes the rate of growth of nominal GNP receives considerable empirical support. The rule provides a better fit than a number of alternatives, including strict inflation stability, strict output stability, and real exchange rate stabilization.

This paper estimates and evaluates monetary policy rules within the context of a structural open economy macroeconomic model of the United States under flexible exchange rates. The major result is that a monetary policy rule, which stabilizes the rate of growth of nominal GNP, receives considerable empirical support. The rule provides a better fit than a number of alternatives, including strict inflation stability, strict output stability, and real exchange rate stabilization.

In August 2020, the Federal Open Market Committee adopted a far-reaching Revised Statement on Longer-Run Goals and Monetary Policy Strategy. The framework contains two major changes from the original 2012 statement. First, policy decisions will attempt to mitigate shortfalls, rather than deviations, of employment from its maximum level. Second, the FOMC will implement Flexible Average Inflation Targeting. We show how to modify the rules in the Fed’s Monetary Policy Report to be consistent with the revised statement, how the pattern of falling behind the curve, pivot, and getting back on track in Fed policy during 2021 and 2022 could have been avoided by following inertial rules consistent with either the original or the revised statements, and how current and projected Fed policy for 2023 – 2026 is in accord with the prescriptions from inertial rules.

This paper proposes an explicit test for determining the significance and the timing of slowdowns in economic growth. We examine a large sample of countries and find that a majority—though not all—exhibit a significant structural break in their postwar growth rates. We find that (a) most industrialized countries experienced postwar growth slowdowns in the early 1970s, though (b) the United States, Canada, and the United Kingdom did not, and (c) developing countries (and in particular, Latin American countries) tended to experience much more severe slowdowns which, in contrast with the more developed countries, began nearly a decade later.

Ever since Nelson and Plosser (1982) found evidence in favor of the unit-root hypothesis for 13 long-term annual macro series, observed unit - root behavior has been equated with persistence in the economy. Perron (1989) questioned this interpretation, arguing instead that the "observed" behavior may indicate failure to account for structural change. Zivot and Andrews (1992) restored confidence in the unit-root hypothesis by incorporating an endogenous break point into the specification. By allowing for the possibility of two endogenous break points, we find more evidence against the unit-root hypothesis than Zivot and Andrews, but less than Perron.

We test for a unit root in postwar unemployment rates for sixteen OECD countries. When a one-time structural break is incorporated, the unit root hypothesis can be rejected for most of the countries and the measured persistence of unemployment falls dramatically. We then test for multiple structural changes and find evidence of one or two breaks for those countries for which the unit root hypothesis could be rejected. Almost all of the breaks are positive, reflecting the sustained rise in European unemployment. The major exception is the United States, where long-term unemployment rose in the 1970s and fell in the 1980s.

Steven G. Craig, Janet E. Kohlhase, David H. Papell, Chaos Theory and Microeconomics: An Application to Model Specification and Hedonic Estimation, The Review of Economics and Statistics, Vol. 73, No. 2 (May, 1991), pp. 208-215