Nonlinear Monetary Policy Rules: Some New Evidence for the U.S.

Juan J. Dolado · Francisco Javier Ruge-Murcia

75 citations0/0 files storedStudies in Nonlinear Dynamics and Econometrics

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Monetary Policy and Economic Impact Global Financial Crisis and Policies Economic theories and models

Abstract

Abstract This paper derives optimal monetary policy rules in setups where certainty equivalence does not hold because either central bank preferences are not quadratic, and/or the aggregate supply relation is nonlinear. Analytical results show that these features lead to sign and size asymmetries, and nonlinearities in the policy rule. Reduced-form estimates indicate that US monetary policy can be characterized by a nonlinear policy rule after 1983, but not before 1979. This finding is consistent with the view that the Fed's inflation preferences during the Volcker-Greenspan regime differ considerably from the ones during the Burns-Miller regime.

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References

1996Impulse response analysis in nonlinear multivariate models 1999The Science of Monetary Policy: A New Keynesian Perspective 2000Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory*1998Monetary policy rules in practice 1997Inflation forecast targeting: Implementing and monitoring inflation targets 1989Precautionary Saving in the Small and in the Large 1998Central Banking in Theory and Practice 1997The Time-Varying NAIRU and its Implications for Economic Policy

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