Friday, 21 November 2014

2014-97: Identifying the Stance of Monetary Policy at the Zero Lower Bound: A Markov-switching Estimation Exploiting Monetary-Fiscal Policy Interdependence

Otmane El Rhazi, Manuel Gonzalez-Astudillo. In this paper, I propose an econometric technique to estimate a Markov-switching Taylor rule subject to the zero lower bound of interest rates. I show that incorporating a Tobit-like specification allows to obtain consistent estimators. More importantly, I show that linking the switching of the Taylor rule coefficients to the switching of the coefficients of an auxiliary uncensored Markov-switching regression improves the identification of an otherwise unidentifiable prevalent monetary regime. To illustrate the proposed estimation technique, I use U.S. quarterly data spanning 1960:1-2013:4. The chosen auxiliary Markov-switching regression is a fiscal policy rule where federal revenues react to debt and the output gap. Results show that there is evidence of policy co-movements with debt-stabilizing fiscal policy more likely accompanying active monetary policy, and vice versa. Full Text



Regards,

Otmane El Rhazi

Press Releases

Equity Trading

Text/Mobile, +44 7414 782 320





RISK DISCLOSURE STATEMENT

ANY OPINIONS, NEWS, RESEARCH, ANALYSIS, OR OTHER INFORMATION ON THIS WEBSITE IS PROVIDED AS GENERAL MARKET COMMENTARY ONLY. THERE ARE RISKS ASSOCIATED WITH UTILIZING AN INTERNET-BASED DEAL EXECUTION TRADING SYSTEM INCLUDING THE FAILURE OF HARDWARE, SOFTWARE, AND INTERNET CONNECTION.

No comments:

Post a Comment