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A Dynamic Tobit Model for the Open Market Desk's Daily Reaction Function

Author

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  • George Monokroussos

    (Economics University at Albany, SUNY)

Abstract

A dynamic Tobit model with Time-varying parameters is proposed for the daily reaction function of the Open Market Desk of the US Federal Reserve. Such a model offers a more realistic depiction of the Desk's behavior than those of past contributions in the literature as it allows for both possible dynamics in the Desk's daily operations and for day-to-day time varying responses of the Desk to changing conditions in the reserves markets and in the short-term interest rates. Ensuing computational complications are overcome by employing Markov Chain Monte Carlo techniques for the estimation of the model. The results reveal a rich pattern of dynamic behavior by the Open Market Desk both inside the maintenance period and across maintenance periods and point towards a Desk which is highly adaptable to evolving conditions both in the economy in general and in the market for reserves in particular

Suggested Citation

  • George Monokroussos, 2006. "A Dynamic Tobit Model for the Open Market Desk's Daily Reaction Function," Computing in Economics and Finance 2006 390, Society for Computational Economics.
    • Handle: RePEc:sce:scecfa:390
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    References listed on IDEAS

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    More about this item

    Keywords

    Reserves; Federal Funds Rate; Open Market Operations; Open Market Desk; Censored Models; Data Augmentation; Markov Chain Monte Carlo; Gibbs Sampling; Time-Varying Parameter Models;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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