On the rising uncertainties and deviations from rules

Onur Seker

EconomiA, 2025, vol. 27, issue 1, 59-76

Abstract: PurposeThe main objective of this study is to analyse the relationship between deviations from monetary policy rules and economic and financial uncertainties in the axis of the “Rules vs Discretion” discussion.Design/methodology/approachIn this respect, the causality relationship between the variables was investigated with the help of nonlinear econometric models. In addition, based on a distinction that is often made in the economic literature, the monetary policies of the FED were divided into two as a rule-based period and a discretionary period.FindingsThe results indicate that rule-based monetary policies are less likely to trigger a crisis than discretionary policies. Moreover, it is seen that the causality relationship between the variables tends to disappear during the periods when uncertainties are at the highest level. This situation can be evaluated as follows: high and long-term uncertainties start to be normalized by economic actors.Originality/valueFurthermore, in this study, the output gap variable in the Taylor rule equation was calculated with three different methods, and the differences caused by the methods in terms of the FED’s power to explain the monetary policies were examined, bringing a new perspective to discussions on this subject.

Keywords: Monetary policy rules; Uncertainty; Taylor rule; Nonlinear causality (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:econpp:econ-04-2024-0056

DOI: 10.1108/ECON-04-2024-0056

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