Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5057590 | Economics Letters | 2017 | 5 Pages |
â¢We ask whether the FED has riskily delayed the exit from its large monetary easing.â¢We focus on the effects of monetary policy on US PCE core inflation.â¢Monetary policy shocks are not pushing inflation much beyond its baseline.â¢Scenario analysis shows that the FED's stance is in line with macroeconomic dynamics.â¢PCE core inflation will likely lie below the FED's target in 2017.
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.