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
Date Written: September 6, 2016
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: Suggested Citation