The School of Economics invites you to a macro/trade seminar by:

Nicholas Groshenny

The University of Adelaide

Co-authors:

Qazi Haque (The University of Western Australia)

Mark Weder (The University of Adelaide)

We re-examine whether the Federal Reserve’s conduct of monetary policy was a source of indeterminacy during the Great Stagflation. We estimate a New Keynesian model with positive trend inflation, commodity price shocks and sluggish real wages. When taking into account the interaction of supply shocks and wage dynamics, our results indicate that the U.S. economy has most likely been within the determinacy region during the 1970s. While interest rate policy reacted actively to inflation, at the same time, it responded weakly to the output gap, ruling out indeterminacy. We then estimate our model over the Great Moderation period and find that the aggregate effects of commodity price shocks have become much more subdued than in the 1970s. A fall in the degree of wage sluggishness appears to be the main cause of the change in the propagation of commodity price disturbances across the two periods