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Frequency Dependence in a Real-Time Monetary Policy Rule

Richard Ashley (), Kwok Ping Tsang () and Randal Verbrugge ()

Working Papers from Virginia Polytechnic Institute and State University, Department of Economics

Abstract: We estimate a monetary policy rule allowing for possible frequency dependence - i.e. allowing the central bank to respond di¤erently to persistent innovations than to transitory innovations, in both the real-time unemployment rate and the real-time inflation rate. The method is flexible, and requires no strong a priori assumptions on the pattern of frequency dependence or on the nature of the data-generating process. The data convincingly reject linearity in the monetary policy rule, in the direction suggested by theory. Our two major …ndings are 1) the post-Volcker central bank responds more strongly to unemployment rate fluctuations than previous regimes do and 2) while the post-Volcker central bank reacts more strongly to persistent inflation fluctuations, it actually accommodates inflation at higher frequencies.

Keywords: Taylor rule; frequency dependence; spectral regression; real-time data (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2010
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ftp://repec.econ.vt.edu/Papers/Tsang/draft_0127.pdf First version, 2010 (application/pdf)
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Working Paper: All Fluctuations Are Not Created Equal: The Differential Roles of Transitory versus Persistent Changes in Driving Historical Monetary Policy (2018) Downloads
Working Paper: Frequency Dependence in a Real-Time Monetary Policy Rule (2014) Downloads
Working Paper: Frequency Dependence in a Real-Time Monetary Policy Rule (2013) Downloads
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