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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.

Suggested Citation

  • 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.
  • Handle: RePEc:een:camaaa:2013-53
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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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    References listed on IDEAS

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    Cited by:

    1. Fujiwara, Ippei & Nakazono, Yoshiyuki & Ueda, Kozo, 2015. "Policy regime change against chronic deflation? Policy option under a long-term liquidity trap," Journal of the Japanese and International Economies, Elsevier, vol. 37(C), pages 59-81.
    2. Yoshiyuki Nakazono, 2016. "Inflation expectations and monetary policy under disagreements," Bank of Japan Working Paper Series 16-E-1, Bank of Japan.
    3. Jinill Kim & Seth Pruitt, 2017. "Estimating Monetary Policy Rules When Nominal Interest Rates Are Stuck at Zero," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(4), pages 585-602, June.

    More about this item

    Keywords

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

    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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