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Risk Management-Driven Policy Rate Gap

Author

Listed:
  • Giovanni Caggiano

    (University of Padova)

  • Efrem Castelnuovo

    () (University of Padova)

  • Gabriela Nodari

    (Reserve Bank of Australia)

Abstract

We employ real-time data available to the US monetary policy makers to estimate a Taylor rule augmented with a measure of financial uncertainty over the period 1969-2008. We find evidence in favor of a systematic response to financial uncertainty over and above that to expected inflation, output gap, and output growth. However, this evidence regards the Greenspan-Bernanke period only. Focusing on this period, the "risk-management" approach is found to be responsible for monetary policy easings for up to 75 basis points of the federal funds rate.

Suggested Citation

  • Giovanni Caggiano & Efrem Castelnuovo & Gabriela Nodari, 2018. "Risk Management-Driven Policy Rate Gap," "Marco Fanno" Working Papers 0225, Dipartimento di Scienze Economiche "Marco Fanno".
  • Handle: RePEc:pad:wpaper:0225
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    References listed on IDEAS

    as
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    1. repec:bla:ausecr:v:52:y:2019:i:1:p:78-93 is not listed on IDEAS
    2. Efrem Castelnuovo & Guay Lim, 2019. "What Do We Know About the Macroeconomic Effects of Fiscal Policy? A Brief Survey of the Literature on Fiscal Multipliers," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 52(1), pages 78-93, March.

    More about this item

    Keywords

    Risk management-driven policy rate gap; uncertainty; monetary policy; Taylor rules; real-time data;

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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