Regime Switching and Monetary Policy Measurement

UCSD Economics Working Paper No. 2001-03

Posted: 3 Jun 2001

See all articles by Michael Owyang

Michael Owyang

Federal Reserve Bank of St. Louis - Research Division

Garey Ramey

University of California, San Diego (UCSD) - Department of Economics

Date Written: January 2001

Abstract

This paper applies regime switching methods to the problem of measuring monetary policy. Policy preferences and structural factors are specified parametrically as independent Markov processes. Interaction between the structural and preference parameters in the policy rule serves to identify the two processes. The estimates uncover policy episodes that are initiated by switches of "dove regimes," shown to Granger cause both NBER recessions and the Romer dates. These episodes imply real effects of monetary policy that are smaller than those found in previous studies.

Keywords: Regime Switching, Monetary Policy, Phillips Curve, Gibbs Sampling

JEL Classification: E52

Suggested Citation

Owyang, Michael T. and Ramey, Garey, Regime Switching and Monetary Policy Measurement (January 2001). UCSD Economics Working Paper No. 2001-03, Available at SSRN: https://ssrn.com/abstract=266520

Michael T. Owyang

Federal Reserve Bank of St. Louis - Research Division ( email )

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Garey Ramey (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

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