A large literature with canonical New Keynesian models has established that the Fed's policy change from a passive to an active response to inflation led to U.S. macro-economic stability after the Great Inflation of the 1970s. We revisit this view by estimating a staggered price model with trend...

This paper investigates how and to what extent nonlinearity, including the zero lower bound on the nominal interest rate, affects the estimates of the natural rate of interest in a dynamic stochastic general equilibrium model with sticky prices and wages. We find that the estimated natural rate...