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

Author

Listed:
  • Carmine Trecroci
  • Matilde Vassalli
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.

Suggested Citation

  • Carmine Trecroci & Matilde Vassalli, 2006. "Monetary policy regime shifts: new evidence from time-varying interest rate rules," Working Papers 0602, University of Brescia, Department of Economics.
    • Handle: RePEc:ubs:wpaper:0602
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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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