Time-Varying Coefficients in a GMM Framework: Estimation of a Forward Looking Taylor Rule for the Federal Reserve
AbstractThis article deals with the estimation of a time-varying coefficients equation with endogenous regressors. A non-parametric approach is proposed, combining the Generalized Method of Moments (GMM) with the smoothing splines litterature as in Hodrick and Prescott (1981). This new method is used to analyze the evolution of a forward-looking Taylor rule for the Federal Reserve (FED) from 1960 until 2006. It suggests that monetary policy accommodated inflation during the 60s and the 70s whereas the chairmanship of P. Volcker was a turning point toward a more aggressive stance on inflation. In addition, monetary policy became more and more countercyclical.
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Bibliographic InfoPaper provided by Banque de France in its series Working papers with number 177.
Length: 39 pages
Date of creation: 2007
Date of revision:
Monetary policy rules ; Generalized Method of Moments ; Time-varying coefficients ; Smoothing splines.;
Find related papers by JEL classification:
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
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