Has US Monetary Policy Changed? Evidence from Drifting Coefficients and Real-Time Data / Jean Boivin.

Format:

Book

Author/Creator:

Boivin, Jean.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11314.

NBER working paper series no. w11314

Language:

English

Subjects (All):

Monetary policy--Econometric models.

Monetary policy.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Cambridge, Mass. : National Bureau of Economic Research, 2005.

Summary:

Despite the large amount of empirical research on monetary policy rules, there is surprisingly little consensus on the nature or even the existence of changes in the conduct of U.S. monetary policy. Three issues appear central to this disagreement: 1) the specific type of changes in the policy coefficients, 2) the treatment of heteroskedasticity, and 3) the real-time nature of the data used. This paper addresses these issues in the context of forward-looking Taylor rules with drifting coefficients. The estimation is based on real-time data and accounts for the presence of heteroskedasticity in the policy shock. The findings suggest important but gradual changes in the rule coefficients, not adequately captured by the usual split-sample estimation. In contrast to Orphanides (2002, 2003), I find that the Fed's response to the real-time forecast of inflation was weak in the second half of the 1970's, perhaps not satisfying Taylor's principle as suggested by Clarida, Galìì and Gertler (2000). However, the response to inflation was strong before 1973 and gradually regained strength from the early 1980's onward. Moreover, as in Orphanides (2003), the Fed's response to real activity fell substantially and lastingly during the 1970's.

Notes:

Print version record

May 2005.