Journal article
(Original article)


Searching for the Fed’s reaction function


Publication Details
Author(s): Wölfel K, Weber C
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.



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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