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

Jinill Kim, Seth Pruitt

Research output: Contribution to journalArticlepeer-review

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

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

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