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Nonlinear Monetary Policy Rules: Some New Evidence for the U.S.

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URI: https://hdl.handle.net/10016/3208
ISSN: ISSN: 1558-3708
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2004
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Berkeley Electronic Press (Berkeley)
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This paper derives optimal monetary policy rules in setups where certainty equivalence does not hold because either central bank preferences are not quadratic, and/or the aggregate supply relation is nonlinear. Analytical results show that these features lead to sign and size asymmetries, and nonlinearities in the policy rule. Reduced-form estimates indicate that US monetary policy can be characterized by a nonlinear policy rule after 1983, but not before 1979. This finding is consistent with the view that the Fed's inflation preferences during the Volcker-Greenspan regime differ considerably from the ones during the Burns-Miller regime.
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Studies in Nonlinear Dynamics and Econometrics, 2004, 8, 3, p. 1-32
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