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Disentangling permanent and transitory monetary shocks with a non-linear Taylor rule

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Lafuente, Juan A. and Pérez, Rafaela M. and Ruiz, Jesús (2018) Disentangling permanent and transitory monetary shocks with a non-linear Taylor rule. [ Documentos de Trabajo del ICAE; nº 19, 2018, ISSN: 2341-2356 ] (Unpublished)

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Abstract

This paper provides an estimation method to decompose monetary policy innovations into persistent and transitory components using the non-linear Taylor rule proposed in Andolfatto et al. [Journal of Monetary Economics 55 (2008) 406–422]. In order to use the Kalman filter as the optimal signal extraction technique we use a convenient reformulation for the state equation by allowing expectations play in significant role in explaining the future time evolution of monetary shocks. This alternative formulation allows us to perform the maximum likelihood estimation for all the parameters involved in the monetary policy. Empirical evidence on US monetary policy making is provided for the period 1980-2011. We compare our empirical estimates with those obtained based on the particle filter. While both procedures lead to similar quantitative and qualitative findings, our approach has much less computational cost.


Item Type:Working Paper or Technical Report
Uncontrolled Keywords:Monetary shocks; Kalman filter; Particle filter; Taylor rule.
Subjects:Social sciences > Economics > Econometrics
Social sciences > Economics > Finance
JEL:C22, F31
Series Name:Documentos de Trabajo del ICAE
Volume:2018
Number:19
ID Code:49145
Deposited On:17 Sep 2018 11:14
Last Modified:17 Sep 2018 11:16

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