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Uncertainty and monetary policy rules in the United States


Reference:

Martin, C. and Milas, C., 2009. Uncertainty and monetary policy rules in the United States. Economic Inquiry, 47 (2), pp. 206-215.

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Official URL:

http://dx.doi.org/10.1111/j.1465-7295.2008.00160.x

Abstract

This article analyzes the impact of uncertainty about the true state of the economy on monetary policy rules in the United States since the early 1980s. Extending the Taylor rule to allow for this type of uncertainty, we find evidence that the predictions of the theoretical literature on responses to uncertainty are reflected in the behavior of policymakers, suggesting that policymakers are adhering to prescriptions for optimal policy. Our estimates suggest that the effect of uncertainty on interest rates was most marked in 1983, when uncertainty increased interest rates by up to 140 basis points, in 1990–1991, when uncertainty reduced interest rates by up to 80 basis points, and in 1996–2001, when uncertainty reduced interest rates by up to 70 basis points over 5 yr.

Details

Item Type Articles
CreatorsMartin, C.and Milas, C.
DOI10.1111/j.1465-7295.2008.00160.x
DepartmentsFaculty of Humanities & Social Sciences > Social & Policy Sciences
Faculty of Humanities & Social Sciences > Economics
RefereedYes
StatusPublished
ID Code14701

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