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Macroeconomic dynamics and inflation regimes in the U.S. Results from threshold vector autoregressions

  • Martin Mandler

    (University of Giessen)

This paper studies regime dependence in macroeconomic dynamics in the U.S. using a threshold vector autoregressive model in which endogenous regime switches are triggered by the inflation rate. The model separates a high from a low inflation regime with both regimes being strongly persistent. Generalized impulse response functions highlight important across-regime differences in the responses of the economy to monetary policy and inflation shocks. Simulating both regimes with individual structural equations interchanged shows a change in inflation dynamics to be the most important source of the transition of the U.S. economy from the high into the low inflation state while the change in the monetary policy reaction functions has only very little effect. Our results indicate that favorable changes in the economic structure and less frequent and smaller shocks are important explanations for the observed decline in U.S. macroeconomic volatility since the mid 1980s.

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File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/12-2010_mandler.pdf
File Function: First version, 2010
Download Restriction: no

Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 201012.

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Length: 32 pages
Date of creation: 2010
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:201012
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Phone: 06421/28-1722
Fax: 06421/28-4858
Web page: http://www.uni-marburg.de/fb02/
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  1. Eric Swanson, 2005. "Optimal Nonlinear Policy: Signal Extraction with a Non-Normal Prior," Computing in Economics and Finance 2005 147, Society for Computational Economics.
  2. Athanasios Orphanides & David H. Small & Volker Wieland & David W. Wilcox, 1997. "A quantitative exploration of the opportunistic approach to disinflation," Finance and Economics Discussion Series 1997-36, Board of Governors of the Federal Reserve System (U.S.).
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  13. Laurence H. Meyer & Eric T. Swanson & Volker W. Wieland, 2001. "NAIRU uncertainty and nonlinear policy rules," Finance and Economics Discussion Series 2001-01, Board of Governors of the Federal Reserve System (U.S.).
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  15. Cukierman Alex, 1992. "Central Bank Strategy, Credibility, And Independance: Theory And Evidence," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 3(4), pages 10, December.
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  17. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
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