 Estimating monetary policy reaction functions using quantile regressionsJournal of Macroeconomics, 2012, vol. 34, issue 2, 342-361 Abstract: Monetary policy rule parameters are usually estimated at the mean of the interest rate distribution conditional on inflation and an output gap. This is an incomplete description of monetary policy reactions when the parameters are not uniform over the conditional distribution of the interest rate. I use quantile regressions to estimate parameters over the whole conditional distribution of the federal funds rate. Inverse quantile regressions are applied to deal with endogeneity. Real-time data of inflation forecasts and the output gap are used. I find significant and systematic variations of parameters over the conditional interest rate distribution. Testing for structural changes in regression quantiles shows that these parameter variations cannot be explained by preference shifts of the Fed. Asymmetric interest rate responses can rather be related to expansions and recessions and are consistent with a recession avoidance preference of the Fed during the Volcker–Greenspan era. Keywords: Monetary policy rules; IV quantile regression; Real-time data; Asymmetries; Policy preferences (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:34:y:2012:i:2:p:342-361 DOI: 10.1016/j.jmacro.2011.12.004 Access Statistics for this article Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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