Searching for the Fed’s reaction function

Wölfel K, Weber C (2017)


Publication Language: English

Publication Type: Journal article, Original article

Publication year: 2017

Journal

Publisher: Springer Verlag (Germany)

Book Volume: 52

Pages Range: 191–227

Journal Issue: 1

URI: http://link.springer.com/article/10.1007/s00181-016-1076-6

DOI: 10.1007/s00181-016-1076-6

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.

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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.

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