Disentangling permanent and transitory monetary shocks with a non-linear Taylor rule

  1. J. A. Lafuente 1
  2. Rafaela M. Pérez 2
  3. Jesús Ruiz 2
  1. 1 Universitat Jaume I
    info

    Universitat Jaume I

    Castelló de la Plana, España

    ROR https://ror.org/02ws1xc11

  2. 2 Universidad Complutense de Madrid
    info

    Universidad Complutense de Madrid

    Madrid, España

    ROR 02p0gd045

Revista:
Documentos de Trabajo (ICAE)

ISSN: 2341-2356

Año de publicación: 2018

Número: 19

Páginas: 1-23

Tipo: Documento de Trabajo

DIALNET GOOGLE SCHOLAR lock_openDocta Complutense editor

Otras publicaciones en: Documentos de Trabajo (ICAE)

Resumen

This paper provides an estimation method to decompose monetary policy innovations into persistent and transitory components using the non-linear Taylor rule proposed in Andolfatto et al. [Journal of Monetary Economics 55 (2008) 406– 422]. In order to use the Kalman filter as the optimal signal extraction technique we use a convenient reformulation for the state equation by allowing expectations play in significant role in explaining the future time evolution of monetary shocks. This alternative formulation allows us to perform the maximum likelihood estimation for all the parameters involved in the monetary policy. Empirical evidence on US monetary policy making is provided for the period 1980-2011. We compare our empirical estimates with those obtained based on the particle filter. While both procedures lead to similar quantitative and qualitative findings, our approach has much less computational cost and is capable to obtain regime-switching probabilities.

€ Ver financiación

Información de financiación

Financial support from the Bank of Spain (program of excellence on Education and Research, 2016, grant PR71/15-20229) and the Spanish Ministry of Education through grant ECO2015-67305-P is gratefully acknowledged.

Financiadores

  • Spanish Ministry of Education Spain
    • ECO2015-67305-P
  • Bank of Spain Spain
    • PR71/15-20229

Referencias bibliográficas

  • Andolfatto, D., Hendry, S. and K. Moran (2008), “Are inflation expectations rational?”, Journal of Monetary Economics 55, 406-422.
  • Aruoba, SB. and F. Schorpheide (2011), “Sticky prices versus monetary frictions: An estimation of policy trade-offs”, American Economic Journal: Macroeconomics 3, 60- 90.
  • Bernanke, B. (2010), “Monetary Policy and the Housing Bubble”, Speech at the Annual Meeting of the American Economic Association, Atlanta Georgia, January.
  • Cogley, T., G. E. Primiceri, and T. Sargent (2010), “Inflation-Gap Persistence in the U.S., American Economic Journal: Macroeconomics, 2, 43-69.
  • Fernández-Villaverde, J. and J. F. Rubio-Ramírez (2005), “Estimating dynamic equilibrium economies: linear versus nonlinear likelihood”, Journal of Applied Econometrics 20, 891–910.
  • Fernández-Villaverde, J. and J.F Rubio-Ramírez (2007), “Estimating macroeconomic models: A likelihood approach”, Review of Economic Studies, 1-46.
  • Hamilton, J.D. (1994), Time Series Analysis, Princeton University Press, Princeton, NJ.
  • Ireland, P. (2007), “Changes in Federal Reserve’s inflation target: Causes and consequences", Journal of Money Credit and Banking 39, 1851-1882.
  • Klingelhöfer, J. and R. Sun, (2017), “China's regime-switching monetary policy”, Economic Modelling, forthcoming.
  • Kozicki, S. and P. Tinsley (2005), “Permanent and transitory policy shocks in an empirical macro model with asymmetric information”, Journal of Economics Dynamics and Control 29, 1985-2015.
  • Milani, F. and J. Treadwell (2012), “The effect of monetary policy ”news” and “surprises”, Journal of Money Credit and Banking 44, 1667-1692.
  • Mostaghimi, M. (2004), “Monetary policy, composite leading economic indicators and predicting the 2001 recession”, Journal of Forecasting 23, 463-477.
  • Orphanides, A. (2003), “Historical monetary policy analysis and the Taylor rule”, Journal of Monetary Economics 50, 983-1022.
  • Taylor J.B. (1993), “Discretion versus policy rules in practice”. Canergie-Rochester Conference on Public Policy, 39, 195-214.
Fuente de los datos: Dialnet