Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory By Richard Clarida, Jordi Gali and Mark Gertler In The Quarterly Journal of Economics, February 2000, Vol. 115, No. 1, pp Presented By Derrek Grunfelder-McCrank, Brandon Hinneberg, and Anthony Galston

Key Question Addressed in Paper How was the role of monetary policy different pre-1979 and post-1979?

Main Findings Pre-Volcker Era ◦ Highly accommodative to expected increases in inflation Volcker-Greenspan Era ◦ Responded to higher expected inflation ◦ Controlling inflation ◦ Forward-looking approach

Outline of Presentation Background Information Data Models Results Conclusion

Background Info 1960s to 1980s vs. Post-1980s Supply shocks? Change in the role of monetary policy? Pre-Volcker vs. Volcker-Greenspan

Data Quarterly time series from 1960:1-1996:4 Instrument set

Models Simple Forward-Looking Rule

Models Implied Real Rate Rule

Models Interest Rate Smoothing and Exogenous Shocks

Models “A comprehensive analysis of the quantitative properties of the model is beyond the scope of the present paper.” (pg. 169) A comprehensive analysis of the quantitative properties of the model is beyond the scope of the present presentation.

Results

Results

Results

Results

Conclusions Simple Forward-Looking Policy Reaction Function Significant differences pre-Volcker (pre- 1979) and Volcker-Greenspan (post-1979)