American Economic Review Vol. 85 No. 1 1995
Monetary Policy Trade-offs and the Correlation between Nominal Interest Rates and Real Output
Abstract
We present a structural model of the U.S. economy that combines our price-contracting specification with a term-structure relationship, an aggregate demand curve, and a monetary-policy reaction function. The model matches important features of postwar data well and provides a structural explanation of the correlation between real output and the short-term nominal rate of interest. We perform a battery of monetary-policy experiments which show that, as viewed through the lens of this model, monetary policy has struck a good balance recently among competing monetary-policy objectives.
- Volume
- 85
- Issue
- 1
- Pages
- 219-239
- Sources
- bibtex:phds-export.bib