Estimating the Market-Perceived Monetary Policy Rule

James Hamilton, Seth Pruitt () and Scott Borger ()

American Economic Journal: Macroeconomics, 2011, vol. 3, issue 3, 1-28

Abstract: We introduce a novel method for estimating a monetary policy rule using macroeconomic news. We estimate directly the policy rule agents use to form their expectations by linking news' effects on forecasts of both economic conditions and monetary policy. Evidence between 1994 and 2007 indicates that the market-perceived Federal Reserve policy rule changed: the output response vanished, and the inflation response path became more gradual but larger in long-run magnitude. These response coefficient estimates are robust to measurement and theoretical issues with both potential output and the inflation target. (JEL C51, E31, E43, E52, E58)

JEL-codes: C51 E31 E43 E52 E58 (search for similar items in EconPapers)
Date: 2011
Note: DOI: 10.1257/mac.3.3.1
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Citations: View citations in EconPapers (30)

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Working Paper: Estimating the Market-Perceived Monetary Policy Rule (2010)
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