Monetary Policy Rules and the U.S. Business Cycle: Evidence and Implications

 
Author/Editor: Rabanal, Pau
 
Publication Date: September 01, 2004
 
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Summary: This paper estimates Taylor-type interest rates for the United States allowing for both time and state dependence. It provides evidence that the coefficients of the Taylor rule change significantly over time, and that the behavior of the Federal Reserve over the cycle can be explained using a two-state switching regime model. During expansions, the Federal Reserve follows a rule that can be characterized as inflation targeting with a high degree of interest rate smoothing. During recessions, the Federal Reserve targets output growth and conducts policy in a more active manner. The implications of conducting this type of policy are analyzed in a small scale new Keynesian model.
 
Series: Working Paper No. 04/164
Subject(s): Business cycles | United States | Monetary Policy | Economic models

Author's Keyword(s): Switching Regime Models | Time-Varying Coefficients | Taylor Rule
 
English
Publication Date: September 01, 2004
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA1642004 Pages: 26
Price:
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