Shifting Preferences at the Fed: Evidence from Rolling Dynamic Multipliers and Impulse Response Analysis

49 Pages Posted: 17 Apr 2011 Last revised: 7 Feb 2012

See all articles by Matthew Greenwood-Nimmo

Matthew Greenwood-Nimmo

University of Melbourne; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Yongcheol Shin

Independent

Date Written: January 22, 2012

Abstract

We derive a new method of modelling the Taylor Rule in a system setting which expressly accounts for its combination of I(0) and I(1) series. Using a long sample of US data, our model provides modest support for an inertial Taylor-type rule. However, estimation across rolling windows indicates that the inflation and output preferences of the Fed have varied signi cantly through time, presumably reflecting the prevailing economic and political conditions, its chairmanship, and the composition of the FOMC. Our most signi cant finding is that the Taylor Principle was robustly upheld under Volcker, often upheld pre-Volcker but rarely observed post-Volcker.

Keywords: System Estimation with Mixed I(0) and I(1) Variables, Long-Run Structural Modelling, Rolling Estimation, Taylor Rule

JEL Classification: C13, C51, E58, N10

Suggested Citation

Greenwood-Nimmo, Matthew and Shin, Yongcheol, Shifting Preferences at the Fed: Evidence from Rolling Dynamic Multipliers and Impulse Response Analysis (January 22, 2012). Available at SSRN: https://ssrn.com/abstract=1810643 or http://dx.doi.org/10.2139/ssrn.1810643

Matthew Greenwood-Nimmo (Contact Author)

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Yongcheol Shin

Independent

No Address Available

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