Estimating Monetary Policy Rules When Nominal Interest Rates Are Stuck at Zero

CAMA Working Paper Series Paper 53/2013

28 Pages Posted: 21 Aug 2013 Last revised: 2 Oct 2016

See all articles by Jinill Kim

Jinill Kim

Korea University

Seth Pruitt

Arizona State University (ASU) - Finance Department

Date Written: September 6, 2016

Abstract

Did the Federal Reserve's response to economic fundamentals change with the onset of the Global Financial Crisis? Estimation of a monetary policy rule to answer this question faces a censoring problem since the interest rate target has been set at the zero lower bound since late 2008. Surveys by forecasters allow us to sidestep the problem and to use conventional regressions and break tests. We find that, in the opinion of forecasters, the Fed's inflation response has decreased and the unemployment response has increased, which suggests that the Federal Reserve's commitment to stable inflation has become weaker in the eyes of the professional forecasters.

Keywords: monetary policy, policy rule, survey data, market perceptions, censoring, zero lower bound, Blue Chip survey

JEL Classification: E53, E58

Suggested Citation

Kim, Jinill and Pruitt, Seth, Estimating Monetary Policy Rules When Nominal Interest Rates Are Stuck at Zero (September 6, 2016). CAMA Working Paper Series Paper 53/2013. Available at SSRN: https://ssrn.com/abstract=2312821 or http://dx.doi.org/10.2139/ssrn.2312821

Jinill Kim (Contact Author)

Korea University ( email )

1 Anam-dong 5 ka
Seoul, 136-701

Seth Pruitt

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

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