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Has the FED Fallen behind the Curve? Evidence from VAR models

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We evaluate the role of US monetary policy in shaping inflation and economic activity by means of a medium-scale Bayesian VAR model, where the ZLB and the unconventional measures are… Click to show full abstract

We evaluate the role of US monetary policy in shaping inflation and economic activity by means of a medium-scale Bayesian VAR model, where the ZLB and the unconventional measures are addressed by using a shadow interest rate. The historical decomposition and a conditional forecast scenario show that the FED’s stance is in line with GDP and inflation dynamics. Moreover, core inflation will likely lie below its target in 2017.

Keywords: fed fallen; behind curve; fallen behind; evidence var; curve evidence; var

Journal Title: Economics Letters
Year Published: 2017

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