Modeling changes in U.S. monetary policy

Nguyen, Anh and Pavlidis, Efthymios and Peel, David Alan (2016) Modeling changes in U.S. monetary policy. Working Paper. Lancaster University, Department of Economics, Lancaster.

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The monetary economics literature has highlighted four issues that are important in evaluating U.S. monetary policy since the late 1960s: (i) time variation in policy parameters, (ii) asymmetric preferences, (iii) revisions to economic data, and (iv) heteroskedasticity. This paper, for the first time, estimates a Taylor rule model that addresses these four issues simultaneously. Our findings suggest that U.S. 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.

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16 Sep 2016 13:44
Last Modified:
01 Jun 2024 23:49