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Modeling changes in US monetary policy with a time-varying nonlinear Taylor rule

Author

Listed:
  • Nguyen Anh D. M.

    (Economics Department, Bank of Lithuania and Faculty of Economics, Vilnius University, Vilnius, Lithuania)

  • Pavlidis Efthymios G.

    (Department of Economics, Lancaster University, Lancaster, UK)

  • Peel David A.

    (Department of Economics, Lancaster University, Lancaster, UK)

Abstract
The monetary economics literature has highlighted four issues that are important in evaluating US monetary policy since the late 1960s: (i) time variation in policy parameters, (ii) asymmetric preferences, (iii) real-time nature of data, and (iv) heteroskedasticity. In this paper, we exploit advances in sequential monte carlo methods to estimate a time-varying nonlinear Taylor rule that addresses these four issues simultaneously. Our findings suggest that US monetary policy has experienced substantial changes in terms of both the response to inflation and to real economic activity, as well as changes in preferences. These changes cannot be captured adequately by a single structural break at the late 1970s, as has been commonly assumed in the literature, and play a non-trivial role in economic performance.

Suggested Citation

  • Nguyen Anh D. M. & Pavlidis Efthymios G. & Peel David A., 2018. "Modeling changes in US monetary policy with a time-varying nonlinear Taylor rule," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 22(5), pages 1-17, December.
    • Handle: RePEc:bpj:sndecm:v:22:y:2018:i:5:p:17:n:6
    DOI: 10.1515/snde-2017-0092
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    References listed on IDEAS

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    More about this item

    Keywords

    asymmetric objective; monetary policy rules; particle filter; real-time data; stochastic volatility; Taylor rule; time-varying parameter model;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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