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Temporal aggregation and estimated monetary policy rules

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  • Bayar Omer

    (Schroeder School of Business, University of Evansville, 1800 Lincoln Avenue, Evansville, IN 47722, USA)

Abstract

Temporal aggregation alters time-series properties of high-frequency data, thereby affecting the estimation of models based on time-aggregated low-frequency data. This paper examines the effect of temporal aggregation of interest rates on forward-looking Taylor-type monetary policy rules. Results show that using quarterly-averaged interest rates in standard forward-looking structures adds a spurious bias to parameters that measure the extent of interest rate smoothing and serial correlation of shocks. Consequently, empirical interpretations of persistence in policy interest rate changes are distorted.

Suggested Citation

  • Bayar Omer, 2014. "Temporal aggregation and estimated monetary policy rules," The B.E. Journal of Macroeconomics, De Gruyter, vol. 14(1), pages 553-577, January.
    • Handle: RePEc:bpj:bejmac:v:14:y:2014:i:1:p:25:n:20
    DOI: 10.1515/bejm-2013-0124
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    References listed on IDEAS

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    More about this item

    Keywords

    federal funds rate; monetary policy rule; temporal aggregation;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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