Decomposing Federal Funds Rate forecast uncertainty using time-varying Taylor rules and real-time data

Martin Mandler

The North American Journal of Economics and Finance, 2012, vol. 23, issue 2, 228-245

Abstract: This paper studies uncertainty about out-of-sample interest rate forecasts implied by an estimated Taylor rule. It is shown that the Taylor rule leads to a decomposition of forecast uncertainty into an element that depends on uncertainty about the future state of the economy and another element that is related to uncertainty about the monetary policy reaction function of the Federal Reserve. Uncertainty about one-quarter ahead Federal Funds Rate forecasts from 1975 to 2007 is estimated and analyzed using a real-time data set for the U.S.

Keywords: Monetary policy reaction function; Interest rate uncertainty; state-space model (search for similar items in EconPapers)
JEL-codes: C22 C53 E37 E52 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:23:y:2012:i:2:p:228-245

DOI: 10.1016/j.najef.2012.01.003

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