Munich Personal RePEc Archive

Testing the Opportunistic Approach to Monetary Policy

Martin, Chris and Milas, Costas (2006): Testing the Opportunistic Approach to Monetary Policy.

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Abstract

The Opportunistic Approach to Monetary Policy is an influential but untested model of optimal monetary policy. We provide the first tests of the model, using US data from 1983Q1-2004Q1. Our results support the Opportunistic Approach. We find that policymakers respond to the gap between inflation and an intermediate target that reflects the recent history of inflation. We find that there is no response of interest rates to inflation when inflation is within 1% of the intermediate target but a strong response when inflation is further from the intermediate target.

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