Testing for Stabilizing Monetary Policy Rules: How Robust to Alternative Specifications?
A common hypothesis of interest in estimated Taylor rules is whether the Federal Funds rate increases more than one-for-one with inflation; a rule with this characteristic is described as stabilizing. This paper discusses the interaction of this hypothesis with the widespread use of a partial adjustment model, in the context of sub-sample stability and robustness to the assumed exclusion of the long bond rate. Estimated rules display sharply different behavior in the 1980s versus the 1990s, and the degree of inertia -- on which the calculated policy response depends -- rises to implausibly high levels in the 1990s. The rising inertia sharpens the non-linearity of the model, imparting fragility to the stabilization inference. Long bond inclusion mitigates these problems, but alternatives to partial adjustment, with a more flexible approach to autocorrelation, also show promise.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 1 (2001)
Issue (Month): 1 (September)
|Contact details of provider:|| Web page: http://www.degruyter.com|
|Order Information:||Web: http://www.degruyter.com/view/j/bejm|
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.:
- Kiefer, Nicholas M. & Bunzel, Helle & Vogelsang, Timothy & Vogelsang, Timothy & Bunzel, Helle, 2000.
"Simple Robust Testing of Regression Hypotheses,"
Staff General Research Papers Archive
1832, Iowa State University, Department of Economics.
- Clarida, Richard & Galí, Jordi & Gertler, Mark, 1998.
"Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory,"
CEPR Discussion Papers
1908, C.E.P.R. Discussion Papers.
- Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, Oxford University Press, vol. 115(1), pages 147-180.
- Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers 98-01, C.V. Starr Center for Applied Economics, New York University.
- Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," NBER Working Papers 6442, National Bureau of Economic Research, Inc.
- Richard Clarida & Jordi Galí & Mark Gertler, 1997. "Monetary policy rules and macroeconomic stability: Evidence and some theory," Economics Working Papers 350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
- McCallum, Bennett T. & Nelson, Edward, 1999.
"Nominal income targeting in an open-economy optimizing model,"
Journal of Monetary Economics,
Elsevier, vol. 43(3), pages 553-578, June.
- Bennett T. McCallum & Edward Nelson, 2000. "Nominal Income Targeting in an Open-Economy Optimizing Model," NBER Working Papers 6675, National Bureau of Economic Research, Inc.
- McCallum, Bennett T. & Nelson, Edward, 1998. "Nominal Income Targeting in an Open-Economy Optimizing Model," Seminar Papers 644, Stockholm University, Institute for International Economic Studies.
- McCallum, B.T. & Nelson, E., 1998. "Nominal Income Targeting in an Open-Economy Optimizing Model," Papers 644, Stockholm - International Economic Studies.
- Andrews, Donald W K, 1991.
"Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation,"
Econometric Society, vol. 59(3), pages 817-58, May.
- Donald W.K. Andrews, 1988. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Cowles Foundation Discussion Papers 877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
- Woodford, Michael, 1999.
"Optimal Monetary Policy Inertia,"
University of Manchester, vol. 67(0), pages 1-35, Supplemen.
- Woodford, Michael, 2000. "Optimal Monetary Policy Inertia," Seminar Papers 666, Stockholm University, Institute for International Economic Studies.
- Woodford, Michael, 1999. "Optimal monetary policy inertia," CFS Working Paper Series 1999/09, Center for Financial Studies (CFS).
- Michael Woodford, 1999. "Optimal Monetary Policy Inertia," NBER Working Papers 7261, National Bureau of Economic Research, Inc.
- Woodford, M., 1999. "Optimal Monetary Policy Inertia.," Papers 666, Stockholm - International Economic Studies.
- Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 869-902.
- Sharon Kozicki, 1999. "How useful are Taylor rules for monetary policy?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-33.
- Bennett T. McCallum, 1994.
"Monetary Policy and the Term Structure of Interest Rates,"
NBER Working Papers
4938, National Bureau of Economic Research, Inc.
- Bennett T. McCallum, 2005. "Monetary policy and the term structure of interest rates," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 1-21.
- Hsu, Chiente & Kugler, Peter, 1997. "The Revival of the Expectations Hypothesis of the US Term Structure of Interest Rates," Economics Letters, Elsevier, vol. 55(1), pages 115-120, August.
- Michael Woodford, 1994. "Nonstandard Indicators for Monetary Policy: Can Their Usefulness Be Judged from Forecasting Regressions?," NBER Chapters, in: Monetary Policy, pages 95-115 National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:bpj:bejmac:v:topics.1:y:2001:i:1:n:3. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.