Abstract: This paper studies the private sector’s perception of US monetary policy under the assumption that agents believe in a Taylor rule. We estimate agent specific Taylor rules on a unique dataset of macroeconomic forecasts from 1986 to 2011, and analyze time and state dependence in the perceived stance of the Central Bank. First, we uncover substantial time variation in the perception of how monetary policy is conducted. Second, we find that disagreement about the parameters of the rule and their associated uncertainty co-move. Third, we find that the policy rule in the mind of agents is both non-linear and state-dependent, and that dispersion in forecasts about future Fed funds rates is highly correlated with model uncertainty. Finally, we perform a three way decomposition of ‘policy uncertainty’ and find that uncertainty about arguments and deviations from the rule are important drivers for Treasury variance risk.
Publication Year: 2013
Publication Date: 2013-01-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 2
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