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Estimating Monetary Policy Rules When Nominal Interest Rates Are Stuck at Zero

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Author Info

  • Jinill Kim
  • Seth Pruitt

Abstract

Did the Federal Reserve's response to economic fundamentals change with the onset of the Global Financial Crisis? Estimation of a monetary policy rule to answer this question faces a censoring problem since the interest rate target has been set at the zero lower bound since late 2008. Surveys by forecasters allow us to sidestep the problem and to use a conventional regression. We find that the Fed's inflation response has decreased and that the unemployment response has remained as strong; this suggests that the Federal Reserve's commitment to stable inflation has become weaker in the eyes of the professional forecasters.

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Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2013-53.

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Length: 53 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:een:camaaa:2013-53

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Related research

Keywords: monetary policy; policy rule; survey data; market perceptions; censoring; zero lower bound; Blue Chip survey;

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References

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Cited by:
  1. FUJIWARA Ippei & NAKAZONO Yoshiyuki & UEDA Kozo, 2014. "Policy Regime Change against Chronic Deflation? Policy option under a long-term liquidity trap," Discussion papers 14019, Research Institute of Economy, Trade and Industry (RIETI).
  2. Ippei Fujiwara, Yoshiyuki Nakazono, Kozo Ueda, 2014. "Policy Regime Change against Chronic Deflation? Policy option under long-term liquidity trap," AJRC Working Papers 1402, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.

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