Transition from the Taylor rule to the zero lower bound

Stan Hurn, Johnson Nicholas (), Annastiina Silvennoinen and Timo Teräsvirta
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Johnson Nicholas: School of Economics and Finance, Queensland University of Technology, Brisbane, Australia

Studies in Nonlinear Dynamics & Econometrics, 2022, vol. 26, issue 5, 635-647

Abstract: This paper examines the Taylor rule in the context of United States monetary policy since 1965, particularly with respect to the zero-lower-bound era of the federal funds rate from 2009 to 2016. A nonlinear Taylor rule is developed which features smooth transitions in the first two moments of the federal funds rate. This flexible specification is found to usefully capture observed nonlinearity, while accounting for the well-documented structural changes in monetary policy formation at the Federal Reserve in the last 50 years, and especially in the recent zero-lower-bound era.

Keywords: liquidity trap; regime switching; smooth transition; structural change; unconventional monetary policy (search for similar items in EconPapers)
JEL-codes: C22 C51 C54 (search for similar items in EconPapers)
Date: 2022
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Working Paper: Transition from the Taylor rule to the zero lower bound (2018)
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DOI: 10.1515/snde-2019-0102

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