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Nonlinearity in the Fed's Monetary Policy Rule

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  • Kim, Dong Heon

    (University of Manchester)

  • Denise R Osborn
  • Marianne Sensier

Abstract

This paper investigates the nature of nonlinearities in the monetary policy rule of the US Fed using the flexible approach of Hamilton (2001a). We find that while there is significant evidence of nonlinearity for the period to 1979, there is little such evidence for the subsequent period. Possible asymmetries in the Fed's reactions to inflation deviations from target and the output gap in the 1960s and 70s may tell part of the story, but do not capture the entire nature of the nonlinearity. The inclusion of the interaction between inflation deviations and the output gap, as recently proposed, appears to characterize the nonlinear policy rule more adequately.

Suggested Citation

  • Kim, Dong Heon & Denise R Osborn & Marianne Sensier, 2003. "Nonlinearity in the Fed's Monetary Policy Rule," Royal Economic Society Annual Conference 2003 121, Royal Economic Society.
  • Handle: RePEc:ecj:ac2003:121
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    References listed on IDEAS

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    Keywords

    nonlinearities; monetary policy rule; Phillips curve; interaction;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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