During the Great Moderation, US monetary policy was conducted as if the Federal Reserve had an NGDP level targeting. That – broadly speaking – ensured money neutrality and, as a consequence, the US economy resembled the Walrasian ideal. In this world, real GDP would more or less move up and down with productivity shocks and other supply shocks and the prices level would move inversely to these shocks. This pretty much is the Real Business Cycle model. This model is a very useful model when the central bank gets it right, but, when the central bank fails, the RBC is pretty useless. Scott Sumner
Posted on: Sun, 07 Dec 2014 11:21:34 +0000
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