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How is the Taylor Rule Distributed under Endogenous Monetary Regimes?
Author(s) -
Liu Xiaochun
Publication year - 2018
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12131
Subject(s) - taylor rule , economics , monetary policy , inflation (cosmology) , quantile , econometrics , nominal interest rate , monetary economics , interim , real interest rate , central bank , physics , archaeology , history , theoretical physics
This paper estimates Taylor rules at various points (quantiles) on the conditional interest‐rate distribution for endogenously identified monetary regimes. I find that the Taylor principle upholds only for the upper tails of the interest‐rate distribution in monetary Hawkish regimes, but not in monetary interim and Dovish regimes. Moreover, the results show that the Federal Reserve responds more aggressively to inflation at upper tails than at lower tails in both monetary Dovish and Hawkish regimes, implying its significant inflation‐avoidance preference. Finally, the Federal Reserve appears to respond to inflation more aggressively during Hawkish regimes than during Dovish regimes across quantiles.