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Nonlinear Monetary Policy Rules: Some New Evidence for the U.S

  • Dolado Juan

    ()

    (Universidad Carlos III)

  • Pedrero Ramón María-Dolores

    ()

    (Universidad de Murcia)

  • Ruge-Murcia Francisco J.

    ()

    (University of Montreal)

This paper derives optimal monetary policy rules in setups where certainty equivalence does not hold because either central bank preferences are not quadratic, and/or the aggregate supply relation is nonlinear. Analytical results show that these features lead to sign and size asymmetries, and nonlinearities in the policy rule. Reduced-form estimates indicate that US monetary policy can be characterized by a nonlinear policy rule after 1983, but not before 1979. This finding is consistent with the view that the Fed's inflation preferences during the Volcker-Greenspan regime differ considerably from the ones during the Burns-Miller regime.

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Article provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.

Volume (Year): 8 (2004)
Issue (Month): 3 (September)
Pages: 1-34

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Handle: RePEc:bpj:sndecm:v:8:y:2004:i:3:n:2
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