Temporal aggregation and estimated monetary policy rules

Bayar Omer ()
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Bayar Omer: Schroeder School of Business, University of Evansville, 1800 Lincoln Avenue, Evansville, IN 47722, USA

The B.E. Journal of Macroeconomics, 2014, vol. 14, issue 1, 553-577

Abstract: Temporal aggregation alters time-series properties of high-frequency data, thereby affecting the estimation of models based on time-aggregated low-frequency data. This paper examines the effect of temporal aggregation of interest rates on forward-looking Taylor-type monetary policy rules. Results show that using quarterly-averaged interest rates in standard forward-looking structures adds a spurious bias to parameters that measure the extent of interest rate smoothing and serial correlation of shocks. Consequently, empirical interpretations of persistence in policy interest rate changes are distorted.

Keywords: federal funds rate; monetary policy rule; temporal aggregation (search for similar items in EconPapers)
JEL-codes: C43 E52 E58 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejmac:v:14:y:2014:i:1:p:25:n:20

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DOI: 10.1515/bejm-2013-0124

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