Interest Rate Persistence and Monetary Policy Rule in Light of Model Uncertainty

Yin Shou-Yung (), Lin Chang-Ching () and Chang Ming-Jen ()
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Yin Shou-Yung: Economics, National Taipei University, No. 151, University Rd., Sanxia Dist., Sanxia 23741, Taiwan
Lin Chang-Ching: Economics, National Cheng Kung University, No.1, University Road, Tainan 70101, Taiwan
Chang Ming-Jen: Economics, National Dong Hwa University, No. 1, Da-Hsueh Rd., Shou-Feng, Hualien 97401, Taiwan

German Economic Review, 2023, vol. 24, issue 2, 145-190

Abstract: We study how model uncertainty affects the understanding of the interest rate persistence using a generalized Taylor-rule function covering numerous submodels via model average approach. The data-driven weights can be regarded as a measure of power-sharing across monetary policy committee members. We show that the model uncertainty is important in Canada, France, and Sweden, and the implied weights indicate that the U.K. and the U.S. have a lower model uncertainty caused either by an over-influential chairman or the consistent agreement of committee members. The importance of model uncertainty can be emphasized by sequential estimation during the 2008 financial crisis.

Keywords: endogeneity; interest rate smoothing; model uncertainty; partial adjustment; policy inertia; serial correlation; Taylor-rule (search for similar items in EconPapers)
JEL-codes: C52 E47 E52 E58 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/ger-2022-0076

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