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Estimating Monetary Policy Rules When Nominal Interest Rates Are Stuck at Zero

  • Jinill Kim
  • Seth Pruitt

Did the Federal Reserve's response to economic fundamentals change with the onset of the Global Financial Crisis? Estimation of a monetary policy rule to answer this question faces a censoring problem since the interest rate target has been set at the zero lower bound since late 2008. Surveys by forecasters allow us to sidestep the problem and to use a conventional regression. We find that the Fed's inflation response has decreased and that the unemployment response has remained as strong; this suggests that the Federal Reserve's commitment to stable inflation has become weaker in the eyes of the professional forecasters.

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File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2013-08/53_2013_kim_pruitt.pdf
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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2013-53.

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Length: 53 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:een:camaaa:2013-53
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  1. Eric T. Swanson & John C. Williams, 2012. "Measuring the effect of the zero lower bound on medium- and longer-term interest rates," Working Paper Series 2012-02, Federal Reserve Bank of San Francisco.
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