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A Dynamic Tobit Model for the Open Market Desk's Daily Reaction Function

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Author Info
George Monokroussos () (Economics University at Albany, SUNY)

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Abstract

A dynamic Tobit model with Time-varying parameters is proposed for the daily reaction function of the Open Market Desk of the US Federal Reserve. Such a model offers a more realistic depiction of the Desk's behavior than those of past contributions in the literature as it allows for both possible dynamics in the Desk's daily operations and for day-to-day time varying responses of the Desk to changing conditions in the reserves markets and in the short-term interest rates. Ensuing computational complications are overcome by employing Markov Chain Monte Carlo techniques for the estimation of the model. The results reveal a rich pattern of dynamic behavior by the Open Market Desk both inside the maintenance period and across maintenance periods and point towards a Desk which is highly adaptable to evolving conditions both in the economy in general and in the market for reserves in particular

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 390.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:390

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Related research
Keywords: Reserves; Federal Funds Rate; Open Market Operations; Open Market Desk; Censored Models; Data Augmentation; Markov Chain Monte Carlo; Gibbs Sampling; Time-Varying Parameter Models;

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Find related papers by JEL classification:
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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    Other versions:
  3. Chib, Siddhartha, 2001. "Markov chain Monte Carlo methods: computation and inference," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 57, pages 3569-3649 Elsevier. [Downloadable!] (restricted)
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  11. Athanasios Orphanides, 2001. "Monetary policy rules, macroeconomic stability and inflation: a view from the trenches," Working Paper Series 115, European Central Bank. [Downloadable!]
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  12. Lee, Lung-fei, 1999. "Estimation of dynamic and ARCH Tobit models," Journal of Econometrics, Elsevier, vol. 92(2), pages 355-390, October. [Downloadable!] (restricted)
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