Estimating Monetary Policy Rules When Nominal Interest Rates Are Stuck at Zero

Jinill Kim, Seth Pruitt

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

Did the Federal Reserve's response to economic fundamentals change with the onset of the Global Financial Crisis? Estimation of a monetary policy rule to answer this question faces a censoring problem since the interest rate target has been set at the zero lower bound since late 2008. Surveys by forecasters allow us to sidestep the problem and to use conventional regressions and break tests. We find that, in the opinion of forecasters, the Fed's inflation response has decreased and the unemployment response has increased, which suggests that the Federal Reserve's commitment to stable inflation has become weaker in the eyes of the professional forecasters.

Original languageEnglish
Pages (from-to)585-602
Number of pages18
JournalJournal of Money, Credit and Banking
Volume49
Issue number4
DOIs
Publication statusPublished - 2017 Jun 1

Fingerprint

Nominal interest rate
Monetary policy rules
Federal Reserve
Inflation
Unemployment
Zero lower bound
Economic fundamentals
Global financial crisis
Interest rates
Censoring

Keywords

  • Blue Chip survey
  • censoring
  • market perceptions
  • monetary policy
  • policy rule
  • survey data
  • Tobit
  • zero lower bound

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Estimating Monetary Policy Rules When Nominal Interest Rates Are Stuck at Zero. / Kim, Jinill; Pruitt, Seth.

In: Journal of Money, Credit and Banking, Vol. 49, No. 4, 01.06.2017, p. 585-602.

Research output: Contribution to journalArticle

@article{de794146b83b4a139c9d2d9cc6dc207d,
title = "Estimating Monetary Policy Rules When Nominal Interest Rates Are Stuck at Zero",
abstract = "Did the Federal Reserve's response to economic fundamentals change with the onset of the Global Financial Crisis? Estimation of a monetary policy rule to answer this question faces a censoring problem since the interest rate target has been set at the zero lower bound since late 2008. Surveys by forecasters allow us to sidestep the problem and to use conventional regressions and break tests. We find that, in the opinion of forecasters, the Fed's inflation response has decreased and the unemployment response has increased, which suggests that the Federal Reserve's commitment to stable inflation has become weaker in the eyes of the professional forecasters.",
keywords = "Blue Chip survey, censoring, market perceptions, monetary policy, policy rule, survey data, Tobit, zero lower bound",
author = "Jinill Kim and Seth Pruitt",
year = "2017",
month = "6",
day = "1",
doi = "10.1111/jmcb.12391",
language = "English",
volume = "49",
pages = "585--602",
journal = "Journal of Money, Credit and Banking",
issn = "0022-2879",
publisher = "Wiley-Blackwell",
number = "4",

}

TY - JOUR

T1 - Estimating Monetary Policy Rules When Nominal Interest Rates Are Stuck at Zero

AU - Kim, Jinill

AU - Pruitt, Seth

PY - 2017/6/1

Y1 - 2017/6/1

N2 - Did the Federal Reserve's response to economic fundamentals change with the onset of the Global Financial Crisis? Estimation of a monetary policy rule to answer this question faces a censoring problem since the interest rate target has been set at the zero lower bound since late 2008. Surveys by forecasters allow us to sidestep the problem and to use conventional regressions and break tests. We find that, in the opinion of forecasters, the Fed's inflation response has decreased and the unemployment response has increased, which suggests that the Federal Reserve's commitment to stable inflation has become weaker in the eyes of the professional forecasters.

AB - Did the Federal Reserve's response to economic fundamentals change with the onset of the Global Financial Crisis? Estimation of a monetary policy rule to answer this question faces a censoring problem since the interest rate target has been set at the zero lower bound since late 2008. Surveys by forecasters allow us to sidestep the problem and to use conventional regressions and break tests. We find that, in the opinion of forecasters, the Fed's inflation response has decreased and the unemployment response has increased, which suggests that the Federal Reserve's commitment to stable inflation has become weaker in the eyes of the professional forecasters.

KW - Blue Chip survey

KW - censoring

KW - market perceptions

KW - monetary policy

KW - policy rule

KW - survey data

KW - Tobit

KW - zero lower bound

UR - http://www.scopus.com/inward/record.url?scp=85019463492&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85019463492&partnerID=8YFLogxK

U2 - 10.1111/jmcb.12391

DO - 10.1111/jmcb.12391

M3 - Article

AN - SCOPUS:85019463492

VL - 49

SP - 585

EP - 602

JO - Journal of Money, Credit and Banking

JF - Journal of Money, Credit and Banking

SN - 0022-2879

IS - 4

ER -