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Modeling changes in U.S. monetary policy

Anh Nguyen, Efthymios Pavlidis and David Alan Peel

No 127876159, Working Papers from Lancaster University Management School, Economics Department

Abstract: 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.

Keywords: Real-time data; Asymmetric objective; Stochastic volatility; Time-varying parameter model; Taylor rule; Monetary policy rules; Particle filter (search for similar items in EconPapers)
JEL-codes: C32 E52 E58 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-ore
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