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Ricardo M Sousa - One of the best experts on this subject based on the ideXlab platform.
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housing wealth financial wealth money demand and Policy Rule evidence from the euro area
The North American Journal of Economics and Finance, 2010Co-Authors: Ricardo M SousaAbstract:Abstract This paper investigates empirically the relation between monetary Policy and asset markets using quarterly data for the euro area. I find that a monetary Policy contraction leads to a substantial fall in wealth. Nevertheless, while financial wealth effects are of short duration, housing wealth effects are very persistent. After a positive interest rate shock there is a flight towards assets that are less liquid and earn higher rates of return. Moreover, expected inflation seems to be the major source of fluctuations in nominal rates over long periods. Finally, the findings suggest that the money demand function is characterized by small output elasticity and large interest elasticity. By its turn, the estimated Policy Rule reveals that the monetary authority pays a special attention to developments in monetary aggregates and adopts a vigilant posture regarding financial markets.
Changjin Kim - One of the best experts on this subject based on the ideXlab platform.
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estimation of a forward looking monetary Policy Rule a time varying parameter model using ex post data
Journal of Monetary Economics, 2006Co-Authors: Changjin Kim, Charles R NelsonAbstract:In this paper, we consider estimation of a time-varying parameter model for a forward-looking monetary Policy Rule, by employing ex-post data. A Heckman-type (1976) two-step procedure is employed in order to deal with endogeneity in the regressors. This allows us to econometrically take into account changing degrees of uncertainty associated with the Fed's forecasts of future inflation and GDP gap when estimating the model. Even though such uncertainty does not enter the model directly, we achieve efficiency in estimation by employing the standardized prediction errors for inflation and GDP gap as bias correction terms in the second-step regression. We note that no other empirical literature on monetary Policy deals with this important issue. Our empirical results also reveal new aspects not found in the literature previously. That is, the history of the Fed's conduct of monetary Policy since the early 1970's can in general be divided into three sub periods: the 1970's, the 1980's, and 1990's. The conventional division of the sample into pre-Volcker and Volcker-Greenspan periods could mislead the empirical assessment of monetary Policy.
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estimation of a forward looking monetary Policy Rule a time varying parameter model using ex post data
Journal of Monetary Economics, 2006Co-Authors: Changjin Kim, Charles R NelsonAbstract:Abstract In this paper, we consider estimation of a time-varying parameter model for a forward-looking monetary Policy Rule, by employing ex post data. A Heckman-type (1976. The common structure of statistical models of truncation, sample selection, and limited dependent variables and a simple estimator for such models. Annals of Economic and Social Measurement 5, 475–492) two-step procedure is employed in order to deal with endogeneity in the regressors. This allows us to econometrically take into account changing degrees of uncertainty associated with the Fed's forecasts of future inflation and GDP gap when estimating the model. Even though such uncertainty does not enter the model directly, we achieve efficiency in estimation by employing the standardized prediction errors for inflation and GDP gap as bias correction terms in the second-step regression. We note that no other empirical literature on monetary Policy deals with this important issue. Our empirical results also reveal new aspects not found in the literature previously. That is, the history of the Fed's conduct of monetary Policy since the early 1970s can in general be divided into three subperiods: the 1970s, the 1980s, and the 1990s. The conventional division of the sample into pre-Volcker and Volcker–Greenspan periods could mislead the empirical assessment of monetary Policy.
John B. Taylor - One of the best experts on this subject based on the ideXlab platform.
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The term structure of Policy Rules
Journal of Monetary Economics, 2009Co-Authors: Josephine Smith, John B. TaylorAbstract:Abstract A formula is derived that links the coefficients of the monetary Policy Rule for the short-term interest rate to the coefficients of the implied affine equations for long-term interest rates. The formula predicts that an increase in the coefficients in the monetary Policy Rule will lead to an increase in the coefficients in the affine equations. Empirical evidence for such a prediction is provided. The curve of the response coefficients by maturity is also predicted by the formula. The formula's predictive accuracy and its closed form make it a useful tool for studying the Policy implications of embedding no-arbitrage affine theories into macro models.
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The Long and the Short End of the Term Structure of Policy Rules
2007Co-Authors: Josephine Smith, John B. TaylorAbstract:We first document a large secular shift in the estimated response of the entire term structure of interest rates to inflation and output in the United States. The shift occurred in the early 1980s. We then derive an equation that links these responses to the coefficients of the central bank's monetary Policy Rule for the short-term interest rate. The equation reveals two countervailing forces that help explain and understand the nature of the link and how its sign is determined. Using this equation, we show that a shift in the Policy Rule in the early 1980s provides an explanation for the observed shift in the term structure. We also explore a shift in the Policy Rule in the 2002-2005 period and its possible effect on long-term rates.
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alternative views of the monetary transmission mechanism what difference do they make for monetary Policy
Oxford Review of Economic Policy, 2000Co-Authors: John B. TaylorAbstract:This paper examines how alternative views of the monetary transmission mechanism affect the choice of a monetary Policy Rule. The main finding is that many different structural models indicate that the same simple monetary Policy Rule--one in which the central bank's target short-term interest rate reacts to inflation and to real output--would perform well. Such Rules work well even in models where the monetary transmission mechanism has a relatively strong exchange-rate channel. The models differ, however, in their implications for more complex monetary Rules. Copyright 2000 by Oxford University Press.
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an historical analysis of monetary Policy Rules
National Bureau of Economic Research, 1998Co-Authors: John B. TaylorAbstract:This paper examines several episodes in U.S. monetary history using the framework of an interest rate Rule for monetary Policy. The main finding is that a monetary Policy Rule in which the interest rate responds to inflation and real output more aggressively than it did in the 1960s and 1970s, or than during the time of the international gold standard, and more like the late 1980s and 1990s, is a good Policy Rule. Moreover, if one defines Rule, then such mistakes have been associated with either high and prolonged inflation or drawn out periods of low capacity utilization.
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discretion versus Policy Rules in practice
Carnegie-Rochester Conference Series on Public Policy, 1993Co-Authors: John B. TaylorAbstract:This paper examines how recent econometric Policy evaluation research on monetary Policy Rules can be applied in a practical Policymaking environment. According to this research, good Policy Rules typically call for changes in the federal funds rate in response to changes in the price level or changes in real income. An objective of the paper is to preserve the concept of such a Policy Rule in a Policy environment where it is practically impossible to follow mechanically any particular algebraic formula that describes the Policy Rule. The discussion centers around a hypothetical but representative Policy Rule much like that advocated in recent research. This Rule closely approximates Federal Reserve Policy during the past several years. Two case studies-German unification and the 1990 oil-price shock-that had a bearing on the operation of monetary Policy in recent years are used to illustrate how such a Policy Rule might work in practice.
Jesús Vázquez - One of the best experts on this subject based on the ideXlab platform.
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Term structure and the estimated monetary Policy Rule in the Eurozone
Spanish Economic Review, 2008Co-Authors: Ramón María-dolores, Jesús VázquezAbstract:In this paper we estimate a standard version of the New Keynesian Monetary (NKM) model augmented with term structure in order to analyze two issues. First, we analyze the effect of introducing an explicit term structure channel in the NKM model on the estimated parameter values of the model, with special emphasis on the interest rate smoothing parameter using data for the Eurozone. Second, we study the ability of the model to reproduce some stylized facts such as highly persistent dynamics, the weak comovement between economic activity and inflation, and the positive, strong comovement between interest rates observed in actual Eurozone data. The Sect. 3 implemented is a classical structural method based on the indirect inference principle.
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the relative importance of term spread Policy inertia and persistent monetary Policy shocks in monetary Policy Rules
Computing in Economics and Finance, 2006Co-Authors: Ramon Mariadolores, Jesús VázquezAbstract:This paper estimates a standard version of the New Keynesian Monetary Model (NKM) augmented with the term structure in order to analyze two types of issue. First we analyse the relative importance of Policy inertia, persistent Policy shocks and the term spread in the estimated US monetary Policy Rule. Second, we study the ability of the model to reproduce some stylized facts such as high persistent dynamics and the weak comovement between economic activity and inflation observed in actual US data. The estimation procedure implemented is a classical structural method based on the indirect inference principle. The empirical results show that (i) Policy intertia, persistent Policy shocks and the term spread are all significant determinants in the estimated US monetary Policy Rule, (ii) the Fed responds to the information content of the spread about future inflation and real activity, but the Fed does not seem to respond independently to the spread; and (iii) the model augmented with term structure reproduces the weak comovement between economic activity and inflation as well as the strong comovement at medium and long-term forecast horizons between the Fed rate and the 1-yar rate observed in the US dat
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the relative importance of term spread Policy inertia and persistent Policy shocks in estimated monetary Policy Rules a structural approach
DFAE-II WP Series, 2005Co-Authors: Ramon Mariadolores, Jesús VázquezAbstract:This paper estimates a standard version of the New Keynesian Monetary (NKM) model augmented with term structure in order to analyze two types of issue. First we analyze the relative importance of Policy inertia, persistent Policy shocks and the term spread in the estimated U.S. monetary Policy Rule. Second, we study the ability of the model to reproduce some stylized facts such as high persistent dynamics and the weak comovement between economic activity and inflation observed in actual U.S. data. The estimation procedure implemented is a classical structural method based on the indirect inference principle. The empirical results show that (i) Policy inertia and persistent Policy shocks are significant determinants in the estimated U.S. monetary Policy Rule; (ii) the Fed does not seem to respond independently to the spread; and (iii) the model augmented with term structure reproduces the weak comovement between economic activity and inflation as well as the strong comovement at medium- and long-term forecast horizons between the Fed rate and the 1-year rate observed in U.S. data.
Charles R Nelson - One of the best experts on this subject based on the ideXlab platform.
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estimation of a forward looking monetary Policy Rule a time varying parameter model using ex post data
Journal of Monetary Economics, 2006Co-Authors: Changjin Kim, Charles R NelsonAbstract:In this paper, we consider estimation of a time-varying parameter model for a forward-looking monetary Policy Rule, by employing ex-post data. A Heckman-type (1976) two-step procedure is employed in order to deal with endogeneity in the regressors. This allows us to econometrically take into account changing degrees of uncertainty associated with the Fed's forecasts of future inflation and GDP gap when estimating the model. Even though such uncertainty does not enter the model directly, we achieve efficiency in estimation by employing the standardized prediction errors for inflation and GDP gap as bias correction terms in the second-step regression. We note that no other empirical literature on monetary Policy deals with this important issue. Our empirical results also reveal new aspects not found in the literature previously. That is, the history of the Fed's conduct of monetary Policy since the early 1970's can in general be divided into three sub periods: the 1970's, the 1980's, and 1990's. The conventional division of the sample into pre-Volcker and Volcker-Greenspan periods could mislead the empirical assessment of monetary Policy.
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estimation of a forward looking monetary Policy Rule a time varying parameter model using ex post data
Journal of Monetary Economics, 2006Co-Authors: Changjin Kim, Charles R NelsonAbstract:Abstract In this paper, we consider estimation of a time-varying parameter model for a forward-looking monetary Policy Rule, by employing ex post data. A Heckman-type (1976. The common structure of statistical models of truncation, sample selection, and limited dependent variables and a simple estimator for such models. Annals of Economic and Social Measurement 5, 475–492) two-step procedure is employed in order to deal with endogeneity in the regressors. This allows us to econometrically take into account changing degrees of uncertainty associated with the Fed's forecasts of future inflation and GDP gap when estimating the model. Even though such uncertainty does not enter the model directly, we achieve efficiency in estimation by employing the standardized prediction errors for inflation and GDP gap as bias correction terms in the second-step regression. We note that no other empirical literature on monetary Policy deals with this important issue. Our empirical results also reveal new aspects not found in the literature previously. That is, the history of the Fed's conduct of monetary Policy since the early 1970s can in general be divided into three subperiods: the 1970s, the 1980s, and the 1990s. The conventional division of the sample into pre-Volcker and Volcker–Greenspan periods could mislead the empirical assessment of monetary Policy.
