2134/37646
Henry W. Chappell
Henry W.
Chappell
Mark N. Harris
Mark N.
Harris
Rob Roy McGregor
Rob Roy
McGregor
Christopher Spencer
Christopher
Spencer
Stop‐go monetary policy
Loughborough University
2019
Monetary policy inertia
Central banking
Ordered probit
Zero lower bound
Economics
Economics not elsewhere classified
2019-04-25 12:39:17
Journal contribution
https://repository.lboro.ac.uk/articles/journal_contribution/Stop_go_monetary_policy/9491657
We propose and estimate several discrete choice models of monetary policy decision-making
that feature time-varying inertia. The models permit us to account for three stylized facts
characterizing monetary policymaking in the United States: (1) target interest rates are gradually
adjusted in small discrete movements, (2) there are some long stretches of time in which rates are
repeatedly moved, and (3) there are other long stretches in which the policy rate does not change.
Our models are used to account for the Fed’s failure to adopt promptly an easier policy stance
during the recession of 2001. They are also used to explain delay in tightening the policy stance
during the 2003-2006 period that featured a bubble in house prices and was followed by a
financial crisis in 2008.