Conventional and Unconventional Monetary Policy Reaction to Uncertainty in Advanced Economies: Evidence from Quantile Regressions

Christina Christou (), Ruthira Naraidoo and Rangan Gupta
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Christina Christou: Open University of Cyprus, School of Economics and Finance. Cyprus

No 201839, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper offers new insight on how the Federal Reserve (Fed) and other monetary policy makers (Bank of England, Bank of Japan and the European Central Bank), reacted in the aftermath of the financial crisis. To this end, the paper makes use of a quantile-based approach that estimates the response of interest rates to inflation and the output gap at various points of the conditional distribution of interest rates. Furthermore to gauge the importance of monetary policy making at the zero lower bound, and to test the propositions that policy shows greater aggression in expansionary measures as interest rates reach low levels, and increasing aggression as the lower bound is approached, we make use of the shadow short rate of interest and a measure of uncertainty to capture this fact. While the results show no detectable evidence of increasing aggression to inflation as the zero lower bound is approached, yet the decreased reaction of the Fed and other monetary policy makers towards uncertainty particularly at lower quantiles of interest rates lends support to expansionary mechanism in place during this time.

Keywords: Interest rate rule; zero lower bound; shadow rate of interest; uncertainty; advanced economies (search for similar items in EconPapers)
JEL-codes: C22 E52 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2018-06
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Related works:
Journal Article: Conventional and unconventional monetary policy reaction to uncertainty in advanced economies: evidence from quantile regressions (2020)
Journal Article: Conventional and unconventional monetary policy reaction to uncertainty in advanced economies: evidence from quantile regressions (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201839

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