October 2022 issue contents
Monetary Policy, Inflation Target, and the Great Moderation: An Empirical Investigation

Qazi Haque
The University of Adelaide
Centre for Applied Macroeconomic Analysis


This paper estimates a New Keynesian model with trend inflation and contrasts Taylor rules featuring fixed versus timevarying inflation target. The estimation is conducted over the Great Inflation and the Great Moderation periods, while allowing for indeterminacy. Time-varying inflation target empirically fits better and active monetary policy prevails in both periods, thereby ruling out sunspots as an explanation of the Great Inflation episode.

JEL Codes: C11, C52, C62, E31, E32, E52.

Online appendix (pdf)