Taylor Rules with Endogenous Regimes

Knut Are Aastveit (), Jamie Cross, Francesco Furlanetto and Herman van Dijk

No No 04/2024, Working Papers from Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School

Abstract: The Fed’s policy rule switches during the different phases of the business cycle. This finding is established using a dynamic mixture model to estimate regime-dependent Taylor-type rules on US quarterly data from 1960 to 2021. Instead of exogenously partitioning the data based on tenures of the Fed chairs, a Bayesian framework is introduced in order to endogenously select timing and number of regimes in a data-driven way. This agnostic approach favors a partitioning of the data based on two regimes related to business cycle phases. Estimated policy rule coefficients differ in two important ways over the two regimes: the degree of gradualism is substantially higher during normal times than in recessionary periods while the output gap coefficient is higher in the recessionary regime than in the normal one. The estimate of the inflation coefficient largely satisfies the Taylor principle in both regimes. The results are substantially reinforced when using real-time data.

Pages: 41 pages
Date: 2024-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://hdl.handle.net/11250/3129806

Related works:
Working Paper: Taylor Rules with Endogenous Regimes (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bny:wpaper:0131

Access Statistics for this paper

More papers in Working Papers from Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School Contact information at EDIRC.
Bibliographic data for series maintained by Helene Olsen ().