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Transition from the Taylor rule to the zero lower bound

Author

Listed:
  • Stan Hurn

    (Queensland University of Technology)

  • Nicholas Johnson

    (Queensland University of Technology)

  • Annastiina Silvennoinen

    (Queensland University of Technology)

  • Timo Teräsvirta

    (Aarhus University, CREATES, C.A.S.E, Humboldt-Universität zu Berlin and Queensland University of Technology)

Abstract

This paper examines the Taylor rule in the context of United States monetary policy since 1965, particularly with respect to the zero-lower-bound era of the federal funds rate from 2009 to 2016. A nonlinear Taylor rule is developed which features smooth transitions in the first two moments of the federal funds rate. This exible specification is found to usefully capture observed nonlinearity, while accounting for the well-documented structural changes in monetary policy formation at the Federal Reserve in the last fifty years, and especially in the recent zero-lower-bound era.

Suggested Citation

  • Stan Hurn & Nicholas Johnson & Annastiina Silvennoinen & Timo Teräsvirta, 2018. "Transition from the Taylor rule to the zero lower bound," CREATES Research Papers 2018-31, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:create:2018-31
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    Cited by:

    1. Vito Polito, 2020. "Nonlinear Business Cycle and Optimal Policy: A VSTAR Perspective," CESifo Working Paper Series 8060, CESifo.

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    More about this item

    Keywords

    liquidity trap; regime switching; smooth transition; structural change; unconventional monetary policy;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling

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