Monetary Policy in the United States. Good Policy Strikes Back

The argument in favor of good policy to explain the Great Moderation is back. In this paper,I am interested in analyzing the role of monetary policy in order to explain business cycle fluctuations in the United States between 1960 and 2012. I build a model with non independent drifting coefficients and stochastic volatility, and I estimate it using novel non-linear Bayesian methods. The main findings of the paper are: 1) there is a substantial evidence of changes in the conduct of monetary policy during the sample period even after controlling for stochastic volatility, contrary to other papers that use similar methods; 2) monetary policy was responsible of the bad inflation episodes of the 1970's and 1980's; 3) better policy is one of the main sources of the stabilization of the economy after 1985