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Estimation and Evaluation of a Segmented Markets Monetary Model

Author

Listed:
  • John Landon-Lane

    (Rutgers University)

  • Filippo Occhino

    (Rutgers University)

Abstract

This paper develops a heterogeneous agents segmented markets model with endogenous production and a monetary authority that follows a Taylor-type interest rate rule. The model is estimated using Markov chain Monte Carlo techniques and is evaluated as a framework suitable for empirical monetary analysis. We find that the segmented markets friction significantly improves the statistical out-of-sample prediction performance of the model, and generates delayed and realistic impulse response functions to monetary policy shocks. In addition, we find that the estimates of the Taylor rule are stable across the pre-1979 and post-1982 periods in our sample, while the volatilities of the structural shocks faced in the pre-1979 period are substantially higher than in the post-1982 period.

Suggested Citation

  • John Landon-Lane & Filippo Occhino, 2005. "Estimation and Evaluation of a Segmented Markets Monetary Model," Departmental Working Papers 200505, Rutgers University, Department of Economics.
    • Handle: RePEc:rut:rutres:200505
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    References listed on IDEAS

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    Cited by:

    1. Areosa, Waldyr Dutra & Areosa, Marta B.M., 2016. "The inequality channel of monetary transmission," Journal of Macroeconomics, Elsevier, vol. 48(C), pages 214-230.
    2. Marta B. M. Areosa & Waldyr D. Areosa & Pierre Monnin, 2016. "How Would Monetary Policy Look Like if John Rawls Had Been Hired as a Chairman of the Fed?," Working Papers Series 447, Central Bank of Brazil, Research Department.

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    More about this item

    Keywords

    Segmented Markets; Markov chain Monte Carlo; Taylor rule; Monetary policy shocks;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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