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Instrumental variable estimation of a nonlinear Taylor rule

  • Zisimos Koustas

    ()

  • Jean-François Lamarche

    ()

This paper studies nonlinear, threshold, models in which some of the regressors can be endogenous. An estimation strategy based on instrumental variables was originally developed for dynamic panel models and we extend it to time series models. We apply this methodology to a forward-looking Taylor rule where nonlinearity is introduced via inflation thresholds.

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File URL: http://hdl.handle.net/10.1007/s00181-010-0411-6
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Article provided by Springer in its journal Empirical Economics.

Volume (Year): 42 (2012)
Issue (Month): 1 (February)
Pages: 1-20

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Handle: RePEc:spr:empeco:v:42:y:2012:i:1:p:1-20
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  9. Dolado, Juan J. & Maria-Dolores, Ramon & Naveira, Manuel, 2005. "Are monetary-policy reaction functions asymmetric?: The role of nonlinearity in the Phillips curve," European Economic Review, Elsevier, vol. 49(2), pages 485-503, February.
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  11. Taylor Mark P. & Davradakis Emmanuel, 2006. "Interest Rate Setting and Inflation Targeting: Evidence of a Nonlinear Taylor Rule for the United Kingdom," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 10(4), pages 1-20, December.
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  17. Donald W.K. Andrews & Christopher J. Monahan, 1990. "An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," Cowles Foundation Discussion Papers 942, Cowles Foundation for Research in Economics, Yale University.
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  19. Molodtsova, Tanya & Nikolsko-Rzhevskyy, Alex & Papell, David H., 2008. "Taylor rules with real-time data: A tale of two countries and one exchange rate," Journal of Monetary Economics, Elsevier, vol. 55(Supplemen), pages S63-S79, October.
  20. Taylor, John B., 1999. "The robustness and efficiency of monetary policy rules as guidelines for interest rate setting by the European central bank," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 655-679, June.
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  22. Bruce E. Hansen, 1996. "Sample Splitting and Threshold Estimation," Boston College Working Papers in Economics 319., Boston College Department of Economics, revised 12 May 1998.
  23. Surico, Paolo, 2007. "The Fed's monetary policy rule and U.S. inflation: The case of asymmetric preferences," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 305-324, January.
  24. Mehmet Caner & Bruce E. Hansen, 2001. "Threshold Autoregression with a Unit Root," Econometrica, Econometric Society, vol. 69(6), pages 1555-1596, November.
  25. Sophocles Mavroeidis, 2010. "Monetary Policy Rules and Macroeconomic Stability: Some New Evidence," American Economic Review, American Economic Association, vol. 100(1), pages 491-503, March.
  26. James H. Stock & Jonathan Wright, 2000. "GMM with Weak Identification," Econometrica, Econometric Society, vol. 68(5), pages 1055-1096, September.
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