Uncertainty and Monetary Policy Rules in the United States
AbstractThis paper analyses the impact of uncertainty about the true state of the economy on monetary policy rules in the US since the early 1980s. Extending the Taylor rule to allow for this type of uncertainty, we find evidence that the predictions of the theoretical literature on responses to uncertainty are reflected in the behaviour of policymakers, suggesting that policymakers are adhering to prescriptions for optimal policy. We find that the impact of uncertainty was most marked in 1983, when uncertainty increased interest rates by up to 140 basis points, in 1989-90, when uncertainty increased interest rates by up to 50 basis points and in 1996-2001 when uncertainty reduced interest rates by up to 50 basis points over five years.
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Bibliographic InfoPaper provided by Economics and Finance Section, School of Social Sciences, Brunel University in its series Economics and Finance Discussion Papers with number 05-22.
Length: 27 pages
Date of creation: Nov 2005
Date of revision:
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Postal: Brunel University, Uxbridge, Middlesex UB8 3PH, UK
Other versions of this item:
- Christopher Martin & Costas Milas, 2009. "Uncertainty And Monetary Policy Rules In The United States," Economic Inquiry, Western Economic Association International, vol. 47(2), pages 206-215, 04.
- Christopher Martin & Costas Milas, 2005. "Uncertainty and Monetary Policy Rules in the United States," Keele Economics Research Papers KERP 2005/10, Centre for Economic Research, Keele University.
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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- Cinzia Alcidi & Alessandro Flamini & Andrea Fracasso, 2011. "Policy Regime Changes, Judgment and Taylor rules in the Greenspan Era," Economica, London School of Economics and Political Science, vol. 78(309), pages 89-107, January.
- Greene, William H. & Gillman, Max & Harris, Mark N. & Spencer, Christopher, 2013.
"The Tempered Ordered Probit (TOP) Model with an Application to Monetary Policy,"
CEI Working Paper Series
2013-04, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
- William H.Greene & Max Gillman & Mark N. Harris & Christopher Spencer, 2013. "The Tempered Ordered Probit (TOP) model with an application to monetary policy," Discussion Paper Series 2013_10, Department of Economics, Loughborough University, revised Sep 2013.
- "Belderbos, Rene & Ikeuchi, Kenta & Fukao, Kyoji & Kim, Young Gak & Kwon, Hyeog Ug, 2013. "Plant Productivity Dynamics and Private and Public R&D Spillovers: Technological, Geographic and Relational Proximity," CEI Working Paper Series 2013-05, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
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