The author evaluates the ability of a variety of output-gap estimators to accurately measure the output gap in a model economy. A small estimated model of the Canadian economy is used to generate artificial data. Using output and inflation data generated by this model, the author uses each output-gap estimation methodology to construct an estimate of the true output gap. He then evaluates the m...

Estimating the micro-founded New Keynesian Phillips Curve using rational inflation expectation proxies has often found that the output gap is not a valid measure of inflation pressure. This paper investigates the empirical success of the NKPC in explaining US inflation, using observed measures of inflation expectations and taking account of serial correlation in the stylized NKPC. Contrary to r...

Bridging the gap between complex signal data output and clear interpretation by non-expert end-users is a major challenge many scientists face when converting their scientific technology into real-life application. Currently, pattern recognition algorithms are most frequently encountered to close this gap, not in least because of straight-forward implementation via convenient software packages....

In many economies, the monetary policy instrument is the level of short-term nominal interest rates, but the monetary policy stance might be better characterised by the ex ante real interest rate that this nominal rate implies, relative to some “neutral” or “natural” real rate of interest. In this paper, we estimate the natural rate of interest and the real interest rate gap the difference betw...

In a standard New Keynesian model, a discretionary and myopic central bank concerned with changes in the output gap and inßation will implement a monetary policy that replicates the optimal, timeless perspective, precommitment policy. By stabilizing output gap changes, the central bank imparts inertia into output and inßation that is absent under pure discretion. It is shown that even a fully o...

This paper studies a modified Chinese Taylor’s rule with money supply growth rate as the intermediate target. We develop survey data to measure the expected inflation and use the real marginal cost as a proxy for the output gap. The Markov regime switching model, the TVP model and the split sample OLS estimation are employed to estimate the changing coefficients of the monetary reaction functio...