TY  - UNPD
A1  - Orphanides, Athanasios
A1  - Williams, John C.
T1  - The decline of activist stabilization policy : natural rate misperceptions, learning, and expectations
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2004,24
N2  - We develop an estimated model of the U.S. economy in which agents form expectations by continually updating their beliefs regarding the behavior of the economy and monetary policy. We explore the effects of policymakers' misperceptions of the natural rate of unemployment during the late 1960s and 1970s on the formation of expectations and macroeconomic outcomes. We find that the combination of monetary policy directed at tight stabilization of unemployment near its perceived natural rate and large real-time errors in estimates of the natural rate uprooted heretofore quiescent in inflation expectations and destabilized the economy. Had monetary policy reacted less aggressively to perceived unemployment gaps, in inflation expectations would have remained anchored and the stag inflation of the 1970s would have been avoided. Indeed, we find that less activist policies would have been more effective at stabilizing both in inflation and unemployment. We argue that policymakers, learning from the experience of the 1970s, eschewed activist policies in favor of policies that concentrated on the achievement of price stability, contributing to the subsequent improvements in macroeconomic performance of the U.S. economy.
T3  - CFS working paper series - 2004, 24 
KW  - Monetary Policy
KW  - Stagnation
KW  - Rational Expectations
KW  - Learning
KW  - USA
KW  - Geldpolitik
KW  - Erwartung
KW  - Wirtschaftsentwicklung
KW  - Geschichte 1965-1979
Y1  - 2004
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/4416
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30-10758
IS  - April 2004
ER  -