Ma_Olson_Wohar_SNDE_2018.pdf (1.09 MB)
Nonlinear Taylor rules: evidence from a large dataset
journal contribution
posted on 2018-05-08, 10:07 authored by Jun Ma, Eric Olson, Mark WoharIn this paper we estimate nonlinear Taylor rules over the 1986-2008 sample time period and augment the traditional Taylor rule by including principal components to better model Federal Reserve policy. Including principal components is useful in that they extract information about the overall economy from multiple economic indicators in a statistically optimal way. Additionally, given that uncertainty may influence Federal Reserve decisions, we incorporate an uncertainty index in the reaction function of the Federal Reserve. We find substantial evidence that the Federal Reserve responded to increases in macroeconomic uncertainty by cutting the Federal Funds rate over the sample period. We also find evidence that the Federal Reserve responded aggressively to increases in capacity utilization, especially when the inflation rate was above 2%.
History
School
- Business and Economics
Department
- Business
Published in
Studies in Nonlinear Dynamics and EconometricsVolume
22Issue
1Citation
MA, J., OLSON, E. and WOHAR, M.E., 2018. Nonlinear Taylor rules: evidence from a large dataset. Studies in Nonlinear Dynamics and Econometrics, 22 (1), 20160082.Publisher
© Walter de GruyterVersion
- VoR (Version of Record)
Publisher statement
This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/Publication date
2018Notes
This paper was accepted for publication in the journal Studies in Nonlinear Dynamics and Econometrics and the definitive published version is available at https://doi.org/10.1515/snde-2016-0082ISSN
1081-1826eISSN
1558-3708Publisher version
Language
- en