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Estimating Monetary Policy Reaction Functions Using Quantile Regressions

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  • Wolters, Maik Hendrik

Abstract

Monetary policy rule parameters are usually estimated at the mean of the interest rate distribution conditional on inflation and an output gap. This is an incomplete description of monetary policy reactions when the parameters are not uniform over the conditional distribution of the interest rate. I use quantile regressions to estimate parameters over the whole conditional distribution of the Federal Funds Rate. Inverse quantile regressions are applied to deal with endogeneity. Realtime data of inflation forecasts and the output gap are used. I find significant and systematic variations of parameters over the conditional distribution of the interest rate.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23857.

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Date of creation: 13 Jul 2010
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Handle: RePEc:pra:mprapa:23857

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Keywords: monetary policy rules; IV quantile regression; real-time data;

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Cited by:
  1. Ravn, Søren Hove, 2014. "Asymmetric monetary policy towards the stock market: A DSGE approach," Journal of Macroeconomics, Elsevier, Elsevier, vol. 39(PA), pages 24-41.
  2. Matthias Neuenkirch & Peter Tillmann, 2012. "Inflation Targeting, Credibility, and Non-Linear Taylor Rules," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 201235, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  3. Schultefrankenfeld, Guido, 2010. "Forecast uncertainty and the Bank of England interest rate decisions," Discussion Paper Series 1: Economic Studies 2010,27, Deutsche Bundesbank, Research Centre.
  4. Konstantin Kiesel & Maik Wolters, 2014. "Estimating monetary policy rules when the zero lower bound on nominal interest rates is approached," Kiel Working Papers 1898, Kiel Institute for the World Economy.
  5. Tae-Hwan Kim & Christophe Muller, 2013. "A Test for Endogeneity in Conditional Quantiles," Working Papers halshs-00854527, HAL.
  6. William Miles & Sam Schreyer, 2012. "Is monetary policy non-linear in Indonesia, Korea, Malaysia, and Thailand? A quantile regression analysis," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, Asia Pacific School of Economics and Government, The Australian National University, vol. 26(2), pages 155-166, November.

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