The rest of the paper is organized as follows: Section 2 describes the model environ- ment, specifies the monetary policy reaction functions under both deviations- or shortfalls- stabilization rules, and provides details on the calibration of the model to the US economy. [...] Section 3 describes the main results of the paper and gives the intuition for the impact of the shortfalls stabilization-rule on the economy. [...] The first rule intends to capture the setting of the nominal policy rate prior to the announcement of the new consensus statement in August 2020. [...] We solve the model under both policy rules using a global solution method which accounts for the potential asymmetries in the policy reaction function as well as the zero lower bound and nonlinear dynamics in the labor market.5 Turning first to the parameters in the central bank’s policy rule, we set the inflation tar- get Π∗ to be consistent with the Federal Reserve’s stated goal for price stabil. [...] The series are used to construct the following measures of price inflation, the third being the baseline reported in the paper: (a) Month on month inflation, averaged to quarterly: We calculate the month on month change in the price index, annualize the rate, and convert to a quarterly frequency using 3 month averages.
- Pages
- 41
- Published in
- Canada
