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Empirical analysis of policy interventions

Author Info

  • Eric Leeper
  • Tao Zha

Abstract

We construct linear projections of macro variables conditional on hypothetical paths of monetary policy, using as an example an identified VAR model. Hypothetical policies are restricted to ones where both the policy intervention and its impacts are consistent with history—otherwise the linear projections are likely to be unreliable. We use the approach to interpret Federal Reserve decisions, modeling their frequent reassessment in light of new information about the tradeoffs policymakers face. The interventions we consider matter: they can shift projected paths and probability distributions of macro variables in economically meaningful ways.

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Article provided by Federal Reserve Bank of San Francisco in its journal Proceedings.

Volume (Year): (2002)
Issue (Month): Mar ()
Pages:

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Handle: RePEc:fip:fedfpr:y:2002:i:mar:x:1
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Keywords: Monetary policy;

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Find related papers by JEL classification:
  • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
  • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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  9. Eric M. Leeper & Tao Zha, 2003. "Modest policy interventions," Working Paper 2003-24, Federal Reserve Bank of Atlanta.
  10. Christopher A. Sims & Tao Zha, 1996. "Bayesian methods for dynamic multivariate models," Working Paper 96-13, Federal Reserve Bank of Atlanta.
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Cited by:

  1. Eric M. Leeper & Tao Zha, 2002. "Modest policy interventions," Working Paper 2002-19, Federal Reserve Bank of Atlanta.
  2. Kociecki, Andrzej, 2013. "Bayesian Approach and Identification," MPRA Paper 46538, University Library of Munich, Germany.
  3. Timothy Cogley & Thomas J. Sargent, 2005. "Drift and Volatilities: Monetary Policies and Outcomes in the Post WWII U.S," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 262-302, April.
  4. Uhlig, Harald, 2001. "Did the Fed surprise the markets in 2001? A case study for VARs with sign restrictions," SFB 373 Discussion Papers 2001,98, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  5. repec:dgr:kubcen:200188 is not listed on IDEAS
  6. Glenn D. Rudebusch, 2002. "Assessing the Lucas critique in monetary policy models," Working Paper Series 2002-02, Federal Reserve Bank of San Francisco.
  7. Alberto Humala & Gabriel Rodríguez, 2011. "Estimation Of A Time Varying Natural Interest Rate For Peru," Documentos de Trabajo / Working Papers 2011-316, Departamento de Economía - Pontificia Universidad Católica del Perú.
  8. Voss, G.M. & Willard, L.B., 2009. "Monetary policy and the exchange rate: Evidence from a two-country model," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 708-720, December.
  9. Eric Leeper, 2003. "An "Inflation Reports" Report," NBER Working Papers 10089, National Bureau of Economic Research, Inc.
  10. Michael S. Hanson, 2006. "Varying Monetary Policy Regimes: A Vector Autoregressive Investigation," Wesleyan Economics Working Papers 2006-003, Wesleyan University, Department of Economics.
  11. Christopher Sims & Tao Zha, 2002. "Macroeconomic switching," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  12. Mésonnier, J-S. & Renne, J-P., 2004. "A Time-Varying Natural Rate for the Euro Area," Working papers 115, Banque de France.
  13. SOOREEA, Rajeev, 2007. "Are Taylor-Based Monetary Policy Rules Forward-Looking?. An Investigation Using Superexogeneity Tests," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 7(2), pages 87-94.
  14. Mesonnier, Jean-Stephane & Renne, Jean-Paul, 2007. "A time-varying "natural" rate of interest for the euro area," European Economic Review, Elsevier, vol. 51(7), pages 1768-1784, October.

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