Monetary policy regime shifts: new evidence from time-varying interest rate rules

Carmine Trecroci and Matilde Vassalli

Working Papers from University of Brescia, Department of Economics

Abstract: We estimate forward-looking interest-rate rules, for major advanced countries, allowing for time variation in their parameters. Traditional constant-parameter reaction functions likely blur the impact of i) model uncertainty, ii) conflicting objectives, iii) shifting preferences and iv) nonlinearities of policymakers choices. We find that monetary policies followed by the US, the UK, Germany, France and Italy, often described in terms of standard Taylor rules, are best summarized by feedback rules that allow for time variation in their parameters. Estimated rules point to sizeable differences in the actual conduct of monetary policies, even in the countries now belonging to the EMU. Also, our TVP specification outperforms the conventional Taylor rule in tracking the actual Fed funds rate.

Date: 2006
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (15)

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Journal Article: MONETARY POLICY REGIME SHIFTS: NEW EVIDENCE FROM TIME‐VARYING INTEREST RATE RULES (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ubs:wpaper:0602

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