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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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  10. Hansen, Lars Peter & Heaton, John & Yaron, Amir, 1996. "Finite-Sample Properties of Some Alternative GMM Estimators," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 262-80, July.
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  13. 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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  17. 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.
  18. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, vol. 91(4), pages 964-985, September.
  19. Sinclair, Tara M. & Gamber, Edward N. & Stekler, Herman & Reid, Elizabeth, 2012. "Jointly evaluating the Federal Reserve’s forecasts of GDP growth and inflation," International Journal of Forecasting, Elsevier, vol. 28(2), pages 309-314.
  20. Nelson, Edward, 2001. "UK Monetary Policy 1972-97: A Guide Using Taylor Rules," CEPR Discussion Papers 2931, C.E.P.R. Discussion Papers.
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  24. 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.
  25. 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.
  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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