Abstract

This paper derives optimal monetary policy rules in setups where certainty equivalence does not hold because either central bank preferences are not quadratic, and/or the aggregate supply relation is nonlinear. Analytical results show that these features lead to sign and size asymmetries, and nonlinearities in the policy rule. Reduced-form estimates indicate that US monetary policy can be characterized by a nonlinear policy rule after 1983, but not before 1979. This finding is consistent with the view that the Fed's inflation preferences during the Volcker-Greenspan regime differ considerably from the ones during the Burns-Miller regime.

Recommended Citation

Juan Dolado, Ramón María-Dolores Pedrero, and Francisco J. Ruge-Murcia (2004) "Nonlinear Monetary Policy Rules: Some New Evidence for the U.S.", Studies in Nonlinear Dynamics & Econometrics: Vol. 8: No. 3, Article 2.
http://www.bepress.com/snde/vol8/iss3/art2

Related Files

dolado_data.zip (7 kB)
Data