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- Title
Policy Regime Changes, Judgment and Taylor rules in the Greenspan Era.
- Authors
ALCIDI, CINZIA; FLAMINI, ALESSANDRO; FRACASSO, ANDREA
- Abstract
This paper investigates policy deviations from linear Taylor rules motivated by the risk management approach followed by the Fed during the Greenspan era. We estimate a nonlinear monetary policy rule via a logistic smoothing transition regression model where policy-makers' judgment, proxied by economically meaningful variables, drives the transition across policy regimes. We find that ignoring judgment-induced nonlinearities while estimating Taylor rules has remarkable costs in terms of fit: above 250 bps in 10 quarters. Although linear Taylor rules describe well the broad contours of monetary policy, they fail to detect relevant policy decisions driven by policy-makers' judgment.
- Subjects
UNITED States; MONETARY policy; TAYLOR'S rule; UNCERTAINTY; RISK management in business; CENTRAL banking industry; INTEREST rates; GREENSPAN, Alan, 1926-; BOARD of Governors of the Federal Reserve System (U.S.)
- Publication
Economica, 2011, Vol 78, Issue 309, p89
- ISSN
0013-0427
- Publication type
Article
- DOI
10.1111/j.1468-0335.2009.00777.x