Estimating the Market-Perceived Monetary Policy Rule | Zendy

James D. Hamilton | Zendy; Seth Pruitt | Zendy; Scott C. Borger | Zendy

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Estimating the Market-Perceived Monetary Policy Rule

Author(s) -

James D. Hamilton,

Seth Pruitt,

Scott C. Borger

Publication year - 2011

Publication title -

american economic journal macroeconomics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 10.443

H-Index - 61

eISSN - 1945-7707

pISSN - 1945-7715

DOI - 10.1257/mac.3.3.1

Subject(s) - monetary policy , economics , inflation (cosmology) , taylor rule , monetary economics , inflation targeting , macroeconomics , econometrics , central bank , physics , theoretical physics

We introduce a novel method for estimating a monetary policy rule using macroeconomic news. We estimate directly the policy rule agents use to form their expectations by linking news' effects on forecasts of both economic conditions and monetary policy. Evidence between 1994 and 2007 indicates that the market-perceived Federal Reserve policy rule changed: the output response vanished, and the inflation response path became more gradual but larger in long-run magnitude. These response coefficient estimates are robust to measurement and theoretical issues with both potential output and the inflation target. (JEL C51, E31, E43, E52, E58)

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