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A Dynamic Tobit Model for the Open Market Desk's Daily Reaction Function

  • George Monokroussos

    ()

    (Economics University at Albany, SUNY)

A dynamic Tobit model with Time-varying parameters is proposed for the daily reaction function of the Open Market Desk of the US Federal Reserve. Such a model offers a more realistic depiction of the Desk's behavior than those of past contributions in the literature as it allows for both possible dynamics in the Desk's daily operations and for day-to-day time varying responses of the Desk to changing conditions in the reserves markets and in the short-term interest rates. Ensuing computational complications are overcome by employing Markov Chain Monte Carlo techniques for the estimation of the model. The results reveal a rich pattern of dynamic behavior by the Open Market Desk both inside the maintenance period and across maintenance periods and point towards a Desk which is highly adaptable to evolving conditions both in the economy in general and in the market for reserves in particular

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File URL: http://repec.org/sce2006/up.679.1141143200.pdf
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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 390.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:390
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  2. Orphanides, Athanasios, 2004. "Monetary Policy Rules, Macroeconomic Stability, and Inflation: A View from the Trenches," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 151-75, April.
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