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Estimating the Taylor Rule in the Time-Frequency Domain

Author

Listed:
  • Luís Aguiar-Conraria

    () (Department of Economics/NIPE, University of Minho)

  • Manuel M. F. Martins

    () (Cef.up and Faculty of Economics, University of Porto)

  • Maria Joana Soares

    () (NIPE and Department of Mathematics and Applications, University of Minho,)

Abstract

We present the first assessment of U.S. monetary policy across time and frequencies within the Taylor Rule framework. We derive a novel wavelet tool - the partial wavelet gain - to estimate a parametric equation relating the federal funds rate to inflation and the output gap. We detect a gradual shift of the focus of policy from short cycles to intermediate cycles at the beginning of the Great Moderation, followed by a strengthening of policy´s reaction to long fluctuations once credibility was attained, and, during the Great Recession, a renewed interest in shorter output cycles. We document that the violation of the Taylor principle until the early 1980s and the strengthening of the reaction of policy to inflation thereafter were more marked at intermediate than at long cycles. Overall, we also detect lead-lag relationships between the policy rate and ináation and the output gap that differ along time and cyclical frequencies.

Suggested Citation

  • Luís Aguiar-Conraria & Manuel M. F. Martins & Maria Joana Soares, 2018. "Estimating the Taylor Rule in the Time-Frequency Domain," NIPE Working Papers 04/2018, NIPE - Universidade do Minho.
  • Handle: RePEc:nip:nipewp:04/2018
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    Cited by:

    1. Aguiar-Conraria, Luis & Martins, Manuel M.F. & Soares, Maria Joana, 2018. "Estimating the Taylor rule in the time-frequency domain," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 122-137.
    2. repec:eee:ecofin:v:48:y:2019:i:c:p:283-294 is not listed on IDEAS
    3. Luís Aguiar-Conraria & Manuel M. F. Martins & Maria Joana Soares, 2019. "The Phillips Curve at 60: time for time and frequency," NIPE Working Papers 04/2019, NIPE - Universidade do Minho.
    4. repec:eee:jmacro:v:57:y:2018:i:c:p:338-349 is not listed on IDEAS

    More about this item

    Keywords

    Monetary Policy; Taylor Rule; Partial Wavelet Gain; Time-Frequency Estimation; Continuous Wavelet Transform.;

    JEL classification:

    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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