Risk Management-Driven Policy Rate Gap

16 Pages Posted: 26 Jul 2018

See all articles by Giovanni Caggiano

Giovanni Caggiano

Department of Economics, Monash University; University of Padua

Efrem Castelnuovo

University of Melbourne - Department of Economics

Gabriela Nodari

Reserve Bank of Australia

Multiple version iconThere are 3 versions of this paper

Date Written: July 24, 2018

Abstract

We employ real-time data available to the US monetary policy makers to estimate a Taylor rule augmented with a measure of financial uncertainty over the period 1969-2008. We find evidence in favor of a systematic response to financial uncertainty over and above that to expected inflation, output gap, and output growth. However, this evidence regards the Greenspan-Bernanke period only. Focusing on this period, the “risk-management” approach is found to be responsible for monetary policy easings for up to 75 basis points of the federal funds rate.

Keywords: Risk management-driven policy rate gap, uncertainty, monetary policy, Taylor rules, real-time data

JEL Classification: C2, E4, E5

Suggested Citation

Caggiano, Giovanni and Castelnuovo, Efrem and Nodari, Gabriela, Risk Management-Driven Policy Rate Gap (July 24, 2018). CAMA Working Paper No. 34/2018. Available at SSRN: https://ssrn.com/abstract=3219569 or http://dx.doi.org/10.2139/ssrn.3219569

Giovanni Caggiano

Department of Economics, Monash University ( email )

900 Dandenong Road
Caulfield East, Victoria 3145
Australia

HOME PAGE: http://https://sites.google.com/site/giovannicaggiano72/CV/home

University of Padua ( email )

Via 8 Febbraio, 2
Padova, Vicenza 35122
Italy

Efrem Castelnuovo (Contact Author)

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

HOME PAGE: http://https://sites.google.com/site/efremcastelnuovo/home

Gabriela Nodari

Reserve Bank of Australia ( email )

65, Martin Place
Sydney, NSW 2000
Australia

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