Castelnuovo, Efrem ; Greco, Luciano ; Raggi, Davide
(2010)
Policy Rules, Regime Switches, and Trend Inflation: An Empirical Investigation for the U.S.
Bologna:
Dipartimento di Scienze economiche DSE,
p. 35.
DOI 10.6092/unibo/amsacta/4550.
In: Quaderni - Working Paper DSE
(691).
ISSN 2282-6483.
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Abstract
This paper estimates Taylor rules featuring instabilities in policy parameters, switches in policy shocks' volatility, and time-varying trend inflation using post-WWII U.S. data. The model embedding the stochastic target performs better in terms of data-fit and identification of the changes in the FOMC's chairmanships. Policy breaks are found not to be synchronized with variations in policy shocks' volatilities. Finally, we detect a negative correlation between systematic monetary policy aggressiveness and inflation gap persistence.
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