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Transition from the Taylor rule to the zero lower bound

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

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

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 exible 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 fifty 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: 2018-11-30
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