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Interest Rate Persistence and Monetary Policy Rule in Light of Model Uncertainty

Author

Listed:
  • Yin Shou-Yung

    (Economics, National Taipei University, No. 151, University Rd., Sanxia Dist., Sanxia 23741, Taiwan)

  • Lin Chang-Ching

    (Economics, National Cheng Kung University, No.1, University Road, Tainan 70101, Taiwan)

  • Chang Ming-Jen

    (Economics, National Dong Hwa University, No. 1, Da-Hsueh Rd., Shou-Feng, Hualien 97401, Taiwan)

Abstract

We study how model uncertainty affects the understanding of the interest rate persistence using a generalized Taylor-rule function covering numerous submodels via model average approach. The data-driven weights can be regarded as a measure of power-sharing across monetary policy committee members. We show that the model uncertainty is important in Canada, France, and Sweden, and the implied weights indicate that the U.K. and the U.S. have a lower model uncertainty caused either by an over-influential chairman or the consistent agreement of committee members. The importance of model uncertainty can be emphasized by sequential estimation during the 2008 financial crisis.

Suggested Citation

  • Yin Shou-Yung & Lin Chang-Ching & Chang Ming-Jen, 2023. "Interest Rate Persistence and Monetary Policy Rule in Light of Model Uncertainty," German Economic Review, De Gruyter, vol. 24(2), pages 145-190, May.
    • Handle: RePEc:bpj:germec:v:24:y:2023:i:2:p:145-190:n:1
    DOI: 10.1515/ger-2022-0076
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    More about this item

    Keywords

    endogeneity; interest rate smoothing; model uncertainty; partial adjustment; policy inertia; serial correlation; Taylor-rule;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • 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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