Monetary policy reestimated: replicatication package.

We study the US monetary policy before and during the Great Moderation. We propose to use a few assumptions on an abstract dynamic stochastic general equilibrium model to derive restrictions on the associated structural vector autoregression model that identify the monetary policy rule and monetary policy shock. Using the estimated monetary policy rule, we argue that the Federal Reserve implemented the Friedman policy of a steady money growth before the Great Moderation. During the Great Moderation, the monetary policy followed the Taylor rule with generalized interest rate smoothing. The use of smoothing is consistent with the hypothesis that the Federal Reserve applied the optimal information filtering during the Great Moderation, but not before. This and other policy changes account for most of the reduction in macroeconomic volatility in the 1980s. The estimated impulse response functions to the monetary policy shock are large and significant, even on the Great Moderation data.