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Policy Rules, Regime Switches, and Trend Inflation: An Empirical Investigation for the U.S

  • Efrem Castelnuovo


    (University of Padua)

  • Luciano Greco


    (University of Padua)

  • Davide Raggi


    (University of Bologna)

This paper estimates Taylor rules featuring instabilities in policy parameters, switches in policy shocks' volatility, and time-varying trend inflation using post-WWII U.S. data. The model embedding the stochastic target performs better in terms of data-fit and identification of the changes in the FOMC's chairmanships. Policy breaks are found not to be synchronized with variations in policy shocks' volatilities. Finally, we detect a negative correlation between systematic monetary policy aggressiveness and inflation gap persistence.

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Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0109.

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Length: 36 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:pad:wpaper:0109
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