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Unconventional monetary policy reaction functions: evidence from the US

Author

Listed:
  • Agnello Luca

    (University of Palermo, Department of Economics, Business and Statistics (SEAS), Viale delle Scienze, 90128 Palermo, Italy)

  • Castro Vitor

    (Loughborough University, School of Business and Economics, Loughborough, Leicestershire LE11 3TU, UK)

  • Dufrénot Gilles

    (Aix-Marseille University, CNRS, EHESS, Centrale Marseille, AMSE, Château La Farge – Route des Milles, 13290 Aix-en-Provence Les Milles, France)

  • Jawadi Fredj

    (University of Lille, 104 Avenue du Peuple Belge, 59049 Lille, France)

  • Sousa Ricardo M.

    (University of Minho, Department of Economics and Economic Policies Research Unit (NIPE), Campus of Gualtar, 4710-057 Braga, Portugal)

Abstract

We specify unconventional monetary policy reaction functions for the Fed using linear and nonlinear econometric frameworks. We find that nonstandard policy measures are largely driven by the dynamics of inflation and the output gap, with the effect being particularly strong during QE rounds. Moreover, we uncover the presence of asymmetry and regime dependence in central bank’s actions since the global financial crisis, especially concerning the response of the term spread and the shadow short rate to the growth rate of central bank reserves. From a policy perspective and given the lack of a systematic response of monetary policy to asset price growth in nonstandard times, our findings seem to corroborate the view that concerns about asset price bubbles, financial sector pro-cyclicality and systemic risk should be part of the macro-prudential policy toolkit.

Suggested Citation

  • Agnello Luca & Castro Vitor & Dufrénot Gilles & Jawadi Fredj & Sousa Ricardo M., 2020. "Unconventional monetary policy reaction functions: evidence from the US," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 24(4), pages 1-18, September.
    • Handle: RePEc:bpj:sndecm:v:24:y:2020:i:4:p:18:n:3
    DOI: 10.1515/snde-2018-0088
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    Cited by:

    1. Patricks Ogiji & Tersoo Shimonkabir Shitile & Nuruddeen Usman, 2022. "Estimating asymmetries in monetary policy reaction function: an oil price augmented Taylor type rule for Nigeria under unconventional regime," Economic Change and Restructuring, Springer, vol. 55(3), pages 1655-1672, August.
    2. Antal, Mark & Kaszab, Lorant, 2022. "Spillovers from the European Central Bank's asset purchases to countries in Central and Eastern Europe," Economic Modelling, Elsevier, vol. 113(C).

    More about this item

    Keywords

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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance

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