Modeling Changes in U.S. Monetary Policy with a Time-Varying Nonlinear Taylor Rule

Nguyen, Anh and Pavlidis, Efthymios and Peel, David Alan (2018) Modeling Changes in U.S. Monetary Policy with a Time-Varying Nonlinear Taylor Rule. Studies in Nonlinear Dynamics and Econometrics, 22 (5): 20170092. ISSN 1558-3708

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The monetary economics literature has highlighted four issues that are important in evaluating US monetary policy since the late 1960s: (i) time variation in policy parameters, (ii) asymmetric preferences, (iii) real-time nature of data, and (iv) heteroskedasticity. In this paper, we exploit advances in sequential monte carlo methods to estimate a time-varying nonlinear Taylor rule that addresses these four issues simultaneously. Our findings suggest that US monetary policy has experienced substantial changes in terms of both the response to inflation and to real economic activity, as well as changes in preferences. These changes cannot be captured adequately by a single structural break at the late 1970s, as has been commonly assumed in the literature, and play a non-trivial role in economic performance.

Item Type:
Journal Article
Journal or Publication Title:
Studies in Nonlinear Dynamics and Econometrics
Uncontrolled Keywords:
?? asymmetric objectivemonetary policy rulesparticle filterreal-time datastochastic volatilitytaylor ruletime-varying parameter modeleconomics and econometricssocial sciences (miscellaneous)analysis ??
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Deposited On:
21 Mar 2018 13:38
Last Modified:
17 Dec 2023 01:39