Estimation of a nonlinear Taylor rule using real-time U.S. data
This paper extends the work in Orphanides (2003) by re-examining the empirical evidence for a Taylor rule in a nonlinear framework. In doing so, it updates the Greenbook dataset used by the afore men- tioned author to the most recent available period. A three-regime threshold regression model is utilized to capture the possibly asymmetric policy reaction function used by the U.S. Federal Reserve. The theoretical foundations for such an approach to monetary policy are discussed in Orphanides and Wilcox (2002). Our results indicate that the estimated Taylor rule for the U.S., based on real-time Greenbook data for the period 1982:3-2003:4, is probably nonlinear.
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- Florio, Anna, 2006. "Asymmetric interest rate smoothing: The Fed approach," Economics Letters, Elsevier, vol. 93(2), pages 190-195, November.
- Nikolsko-Rzhevskyy, Alex, 2008. "Monetary Policy Evaluation in Real Time: Forward-Looking Taylor Rules Without Forward-Looking Data," MPRA Paper 11352, University Library of Munich, Germany.
- Croushore, Dean & Stark, Tom, 2001. "A real-time data set for macroeconomists," Journal of Econometrics, Elsevier, vol. 105(1), pages 111-130, November.
- 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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