Searching for the Fed’s reaction function

Journal article
(Original article)


Publication Details

Author(s): Wölfel K, Weber C
Journal: Empirical Economics
Publisher: Springer Verlag (Germany)
Publication year: 2017
Volume: 52
Journal issue: 1
Pages range: 191–227
ISSN: 0377-7332
Language: English


Abstract


There is still some doubt about those economic variables that really matter for the Fed’s decisions. In comparison with other estimations, this study uses the approach of Bayesian model averaging (BMA). The estimations show that over the long-run inflation, unemployment rates and long-term interest rates are the crucial variables in explaining the Federal Funds Rate. In the other two estimation samples, also the fiscal deficit and monetary aggregates were of relevance. There is also evidence for interest rate smoothing. In addition, we account for parameter instability by combining BMA with time-varying coefficient (TVC) modelling. We find strong evidence for structural breaks. Finally, a model average is constructed via an TVC-BMA approach.



FAU Authors / FAU Editors

Weber, Christoph
Lehrstuhl für Volkswirtschaftslehre
Wölfel, Katrin
Lehrstuhl für Volkswirtschaftslehre


How to cite

APA:
Wölfel, K., & Weber, C. (2017). Searching for the Fed’s reaction function. Empirical Economics, 52(1), 191–227. https://dx.doi.org/10.1007/s00181-016-1076-6

MLA:
Wölfel, Katrin, and Christoph Weber. "Searching for the Fed’s reaction function." Empirical Economics 52.1 (2017): 191–227.

BibTeX: 

Last updated on 2018-18-05 at 07:08