The Response of Monetary Policy to Uncertainty: Theory and Empirical Evidence for the US
AbstractThis paper developes a theoretical model to analyse the impact of uncertainty about the true state of the economy on monetary policy. The theoretical model is tested on US data since the early 1980s. Our estimates suggest that the effect of uncertainty on interest rates was most marked in 1983, when uncertainty increased interest rates by up to 140 basis points, in 1990-91, when uncertainty reduced interest rates by up to 80 basis points and in 1996-2001 when uncertainty reduced interest rates by up to 70 basis points over five years.
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Bibliographic InfoPaper provided by Centre for Economic Research, Keele University in its series Keele Economics Research Papers with number KERP 2006/15.
Length: 32 pages
Date of creation: Jul 2005
Date of revision: Aug 2006
Note: We thank seminar audiences at Brunel, Cambridge and Loughborough Universities and at Cass Business School for their comments.
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Postal: Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom
Phone: +44 (0)1782 584581
Fax: +44 (0)1782 717577
Web page: http://www.keele.ac.uk/depts/ec/cer/
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Postal: Centre for Economic Research, Research Institute for Public Policy and Management, Keele University, Staffordshire ST5 5BG - United Kingdom
Find related papers by JEL classification:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-11-25 (All new papers)
- NEP-CBA-2006-11-25 (Central Banking)
- NEP-MAC-2006-11-25 (Macroeconomics)
- NEP-MON-2006-11-25 (Monetary Economics)
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