In this seminar Dony Alex will provide an overview of his recent paper, Implicit Central Bank Preferences: Nominal GDP and the Great Moderation. Dony Alex estimates a forward looking nominal GDP rule for the U.S spanning from 1960-2007 and tries to reconsider the preferences of the Federal Reserve during this period. Most of the studies until now have focused mainly on Taylor rule type monetary policy reaction functions and found inflation to be the major preference variable for the Federal Reserve. Monetary policy via stabilization of inflation expectations has been argued as one of the prominent factors responsible for the Great Moderation in the U.S. Dony Alex’s study counters the conventional stronger preference for inflation view for stabilizing expected inflation, and instead shows that the Federal Reserve was implicitly targeting nominal GDP for accomplishing this objective. This claim has been corroborated by estimating different variants of nominal GDP rules and compared with Taylor rules using both ex-post revised data and real time briefing forecasts of FOMC. The results found by Dony Alex counter the conventional view and show that post Volcker era or during the period of Great Moderation (1984-2007), the Federal Reserve had a stronger implicit preference for nominal GDP as compared to inflation.

Dony Alex is a PhD student at CAMA. His research interests are in monetary policy and macroeconomics.

The CAMA Macroeconomics Brown Bag Seminars offer CAMA speakers, in particular PhD students, an opportunity to present their work in progress in front of their peers, and reputable visitors to showcase their work.