This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

The Taylor rule and interest rate uncertainty in the U.S. 1955-2006

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Mandler, Martin

Additional information is available for the following registered author(s):

Abstract

We use a Taylor rule with time-varying policy coefficients in combination with an unobserved components model for the output gap to estimate the uncertainty about future values of the Federal Funds Rate. The model makes it possible to separate ex-ante interest rate uncertainty into three components: 1) uncertainty about the Fed's future policy coefficients, 2) uncertainty about future economic fundamentals, and 3) residual uncertainty. The results show important changes in uncertainty about future short-term interest rates over time with peaks in the late 1960s/early 1970s, mid 1970s and late 1970s/early 1980s. While for one-quarter forecasts uncertainty about the Fed's policy reaction is more important than uncertainty about economic fundamentals this result is reversed for the two-quarter forecast horizon. Results from a modified model with regime shifts in the variance of the policy shocks confirm the previous findings but show changes in residual uncertainty to be important as well.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://mpra.ub.uni-muenchen.de/2340/
File Format:
File Function:
Download Restriction: no

Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2340.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length:
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:pra:mprapa:2340

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Ekkehart Schlicht).

Related research
Keywords: monetary policy rules interest rate uncertainty Kalman filter

Other versions of this item:

Find related papers by JEL classification:
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Markku Lanne & Pentti Saikkonen, 2003. "Modeling the U.S. Short-Term Interest Rate by Mixture Autoregressive Processes," Journal of Financial Econometrics, Oxford University Press, vol. 1(1), pages 96-125.
    Other versions:
  2. Kuttner, Kenneth N, 1994. "Estimating Potential Output as a Latent Variable," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 361-68, July.
  3. Sun, Licheng, 2005. "Regime shifts in interest rate volatility," Journal of Empirical Finance, Elsevier, vol. 12(3), pages 418-434, June. [Downloadable!] (restricted)
  4. Guglielmo Maria Caporale & Andrea Cipollini, 2002. "The Euro and Monetary Policy Transparency," Eastern Economic Journal, Palgrave Macmillan Journals, vol. 28(1), pages 59-70, Winter. [Downloadable!] (restricted)
  5. Carmine Trecroci & Matilde Vassalli, 2006. "Monetary policy regime shifts: new evidence from time-varying interest rate rules," Working Papers 0602, University of Brescia, Department of Economics. [Downloadable!]
  6. Fabio Fornari, 2005. "The rise and fall of US dollar interest rate volatility: evidence from swaptions," BIS Quarterly Review, Bank for International Settlements, September. [Downloadable!]
  7. Watson, Mark W., 1986. "Univariate detrending methods with stochastic trends," Journal of Monetary Economics, Elsevier, vol. 18(1), pages 49-75, July. [Downloadable!] (restricted)
  8. Favero, Carlo A & Mosca, Federico, 2001. "Uncertainty on Monetary Policy and the Expectational Model of the Term Structure of Interest Rates," CEPR Discussion Papers 2748, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  9. Vincent R. Reinhart, 2003. "Making monetary policy in an uncertain world," Proceedings, Federal Reserve Bank of Kansas City, pages 265-274. [Downloadable!]
  10. 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. [Downloadable!] (restricted)
  11. Athanasios Orphanides, 2002. "Monetary-Policy Rules and the Great Inflation," American Economic Review, American Economic Association, vol. 92(2), pages 115-120, May. [Downloadable!] (restricted)
    Other versions:
  12. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February. [Downloadable!] (restricted)
    Other versions:
  13. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, vol. 91(4), pages 964-985, September. [Downloadable!] (restricted)
    Other versions:
  14. Guglielmo Maria Caporale & Andrea Cipollini, 2002. "The Euro and Monetary Policy Transparency," Eastern Economic Journal, Eastern Economic Association, vol. 28(1), pages 59-70, Winter. [Downloadable!]
  15. Kuzin, Vladimir, 2006. "The inflation aversion of the Bundesbank: A state space approach," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1671-1686. [Downloadable!] (restricted)
  16. Jean Boivin, 2005. "Has US Monetary Policy Changed? Evidence from Drifting Coefficients and Real-Time Data," NBER Working Papers 11314, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Juan Ayuso & Andrew Haldane & Fernando Restoy, 1997. "Volatility transmission along the money market yield curve," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 133(1), pages 56-75, March. [Downloadable!] (restricted)
  18. Muellbauer, John & Nunziata, Luca, 2004. "Forecasting (and Explaining) US Business Cycles," CEPR Discussion Papers 4584, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  19. Joseph P. Byrne & E. Philip Davis, 2005. "Investment and Uncertainty in the G7," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 141(1), pages 1-32, April. [Downloadable!] (restricted)
    Other versions:
Full references

Statistics
Access and download statistics

Did you know? RePEc data is maintained by each archive holder on its own website. Nothing is held centrally.

This page was last updated on 2008-10-10.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.