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

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  • Jinill Kim
  • Seth Pruitt

Abstract

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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Keywords: monetary policy; policy rule; survey data; market perceptions; censoring; zero lower bound; Blue Chip survey;

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Find related papers by JEL classification:
  • E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance
  • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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  8. Jinill Kim & Seth Pruitt, 2013. "Estimating Monetary Policy Rules When Nominal Interest Rates Are Stuck at Zero," CAMA Working Papers 2013-53, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  9. Glenn D. Rudebusch, 2009. "The Fed's monetary policy response to the current crisis," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue may22.
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  12. Yasuo Hirose & Takushi Kurozumi, 2012. "Identifying News Shocks with Forecast Data," CAMA Working Papers 2012-01, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  13. Olivier Coibion & Yuriy Gorodnichenko, 2012. "What Can Survey Forecasts Tell Us about Information Rigidities?," Journal of Political Economy, University of Chicago Press, vol. 120(1), pages 116 - 159.
  14. Fendel, Ralf & Frenkel, Michael & Rülke, Jan-Christoph, 2011. ""Ex-ante" Taylor rules and expectation forming in emerging markets," Journal of Comparative Economics, Elsevier, vol. 39(2), pages 230-244, June.
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  16. Karlyn Mitchell & Douglas Pearce, 2010. "Do Wall Street economists believe in Okun’s Law and the Taylor Rule?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 34(2), pages 196-217, April.
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  18. James D. Hamilton & Seth Pruitt & Scott Borger, 2010. "Estimating the Market-Perceived Monetary Policy Rule," NBER Working Papers 16412, National Bureau of Economic Research, Inc.
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Cited by:

  1. Jinill Kim & Seth Pruitt, 2013. "Estimating Monetary Policy Rules When Nominal Interest Rates Are Stuck at Zero," CAMA Working Papers 2013-53, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. FUJIWARA Ippei & NAKAZONO Yoshiyuki & UEDA Kozo, 2014. "Policy Regime Change against Chronic Deflation? Policy option under a long-term liquidity trap," Discussion papers 14019, Research Institute of Economy, Trade and Industry (RIETI).
  3. Yoshiyuki Nakazono, 2016. "Inflation expectations and monetary policy under disagreements," Bank of Japan Working Paper Series 16-E-1, Bank of Japan.

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