Frequency Dependence in a Real-Time Monetary Policy Rule
We estimate a monetary policy rule allowing for possible frequency dependence - i.e. allowing the central bank to respond diÂ¤erently to persistent innovations than to transitory innovations, in both the real-time unemployment rate and the real-time inflation rate. The method is flexible, and requires no strong a priori assumptions on the pattern of frequency dependence or on the nature of the data-generating process. The data convincingly reject linearity in the monetary policy rule, in the direction suggested by theory. Our two major â€¦ndings are 1) the post-Volcker central bank responds more strongly to unemployment rate fluctuations than previous regimes do and 2) while the post-Volcker central bank reacts more strongly to persistent inflation fluctuations, it actually accommodates inflation at higher frequencies.
|Date of creation:||2010|
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