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Estimating monetary reaction functions at near zero interest rates

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  • Kim, Tae-Hwan
  • Mizen, Paul

Abstract

The importance of truncated distributions for bias in estimation is demonstrated for a Japanese policy reaction function. Due to the proximity of a zero lower bound (ZLB) on interest rates, coefficient estimates can be biased upwards. This paper illustrates the importance of measuring and correcting estimates for this bias using Japan's unique experience of prolonged low inflation/deflation.

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File URL: http://www.sciencedirect.com/science/article/B6V84-4XB1T7W-1/2/ff0d1dbeb38b061f1bd3024672a26e3e
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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 106 (2010)
Issue (Month): 1 (January)
Pages: 57-60

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Handle: RePEc:eee:ecolet:v:106:y:2010:i:1:p:57-60

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Web page: http://www.elsevier.com/locate/ecolet

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Keywords: Monetary policy Zero lower bounds Japan Tobit;

References

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  1. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  2. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
  3. Clarida, Richard & GalĂ­, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," CEPR Discussion Papers 1750, C.E.P.R. Discussion Papers.
  4. Ben Bernanke & Mark Gertler, 2000. "Monetary Policy and Asset Price Volatility," NBER Working Papers 7559, National Bureau of Economic Research, Inc.
  5. Chung, Ching-Fan & Goldberger, Arthur S, 1984. "Proportional Projections in Limited Dependent Variable Models," Econometrica, Econometric Society, vol. 52(2), pages 531-34, March.
  6. Orphanides, Athanasios & Wieland, Volker, 2000. "Efficient Monetary Policy Design near Price Stability," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 327-365, December.
  7. Greene, William H, 1981. "On the Asymptotic Bias of the Ordinary Least Squares Estimator of the Tobit Model," Econometrica, Econometric Society, vol. 49(2), pages 505-13, March.
  8. Kenneth N. Kuttner & Adam S. Posen, 2003. "The Difficulty of Discerning What's Too Tight: Taylor Rules and Japanese Monetary Policy," Working Paper Series WP03-10, Peterson Institute for International Economics.
  9. Amemiya, Takeshi, 1984. "Tobit models: A survey," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 3-61.
  10. Goldberger, Arthur S., 1981. "Linear regression after selection," Journal of Econometrics, Elsevier, vol. 15(3), pages 357-366, April.
  11. Oda, Nobuyuki & Nagahata, Takashi, 2008. "On the function of the zero interest rate commitment: Monetary policy rules in the presence of the zero lower bound on interest rates," Journal of the Japanese and International Economies, Elsevier, vol. 22(1), pages 34-67, March.
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Cited by:
  1. Konstantin Kiesel & Maik Wolters, 2014. "Estimating monetary policy rules when the zero lower bound on nominal interest rates is approached," Kiel Working Papers 1898, Kiel Institute for the World Economy.

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