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TitleEstimating the Taylor Rule in the Time-Frequency Domain
Author(s)Aguiar-Conraria, Luís
Martins, Manuel M. F.
Soares, M. J.
KeywordsMonetary Policy
Taylor Rule
Partial Wavelet Gain
Time-Frequency Estimation
Continuous Wavelet Transform
Issue date2018
PublisherUniversidade do Minho. Núcleo de Investigação em Políticas Económicas (NIPE)
JournalNIPE Working Paper
Abstract(s)We present the first assessment of U.S.monetary policy across time and frequencies within the Taylor Rule framework. We derive a novel wavelet tool - the partial wavelet gain - to estimate a parametric equation relating the federal funds rate to infation and the output gap. We detect a gradual shift of the focus of policy from short cycles to intermediate cycles at the beginning of the Great Moderation,followed by a strengthening of policy´s reaction to long fluctuations once credibility was attained, and, during the Great Recession, a renewed interest in shorter output cycles. We document that the violation of the Taylor principle until the early 1980s and the strengthening of the reaction of policy to inflation there after were more marked at intermediate than at long cycles. Overall, we also detect lead-lag relationships between the policy rate and infation and the output gap that differ along time and cyclical frequencies.
TypeWorking paper
Publisher version
AccessOpen access
Appears in Collections:NIPE - Documentos de Trabalho

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