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Transition from the Taylor rule to the zero lower bound

Author

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  • Hurn Stan
  • Johnson Nicholas
  • Silvennoinen Annastiina
  • Teräsvirta Timo

    (School of Economics and Finance, Queensland University of Technology, Brisbane, Australia)

Abstract

This paper examines the Taylor rule in the context of United States monetary policy since 1965, particularly with respect to the zero-lower-bound era of the federal funds rate from 2009 to 2016. A nonlinear Taylor rule is developed which features smooth transitions in the first two moments of the federal funds rate. This flexible specification is found to usefully capture observed nonlinearity, while accounting for the well-documented structural changes in monetary policy formation at the Federal Reserve in the last 50 years, and especially in the recent zero-lower-bound era.

Suggested Citation

  • Hurn Stan & Johnson Nicholas & Silvennoinen Annastiina & Teräsvirta Timo, 2022. "Transition from the Taylor rule to the zero lower bound," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 26(5), pages 635-647, December.
    • Handle: RePEc:bpj:sndecm:v:26:y:2022:i:5:p:635-647:n:5
    DOI: 10.1515/snde-2019-0102
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    1. Vito Polito, 2020. "Nonlinear Business Cycle and Optimal Policy: A VSTAR Perspective," CESifo Working Paper Series 8060, CESifo.

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    More about this item

    Keywords

    liquidity trap; regime switching; smooth transition; structural change; unconventional monetary policy; C22; C51; C54;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling

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