Estimating the market-perceived monetary policy rule

James D. Hamilton, Seth Pruitt, Scott Borger

Research output: Contribution to journalArticle

16 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)1-28
Number of pages28
JournalAmerican Economic Journal: Macroeconomics
Volume3
Issue number3
DOIs
StatePublished - Jul 2011
Externally publishedYes

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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