Modeling changes in US monetary policy with a time-varying nonlinear Taylor rule

Abstract

The monetary economics literature has highlighted four issues that are important in evaluating US monetary policy since the late 1960s: (i) time variation in policy parameters, (ii) asymmetric preferences, (iii) real-time nature of data, and (iv) heteroskedasticity. In this paper, we exploit advances in sequential monte carlo methods to estimate a time-varying nonlinear Taylor rule that addresses these four issues simultaneously. Our findings suggest that US monetary policy has experienced substantial changes in terms of both the response to inflation and to real economic activity, as well as changes in preferences. These changes cannot be captured adequately by a single structural break at the late 1970s, as has been commonly assumed in the literature, and play a non-trivial role in economic performance.

Research on China's Monetary Policy Orientation and Regulation in COVID-19

“…In addition, considering the structural changes of monetary policy, Primiceri ( 19 ) proposed a time-varying parameter vector autoregression model and used the MCMC method for estimation, believing that the Taylor rule has time-varying characteristics. Nguyen et al ( 20 ) identified that the non-linear Taylor rule with time-varying parameters could better measure the monetary policy behavior of the United States after the 1960s.…”