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Author
Shodipe Oladimeji T. (Kansas State University, USA), Shobande Olatunji Abdul (University of Aberdeen, United Kingdom)
Title
Monetary Policy Dynamics in the United States
Source
Open Economics, 2021, vol. 4, iss. 1, s. 14-30, wykr., tab., bibliogr. 60 poz.
Keyword
Polityka pieniężna państwa, Preferencje, Optymalizacja
State monetary policy, Preferences, Optimalization
Note
JEL Classification: E32, E45, E52, E58
summ.
Company
Bank Rezerwy Federalnej Stanów Zjednoczonych
Country
Stany Zjednoczone Ameryki
United States of America (USA)
Abstract
The recognised approach to designing an optimal monetary policy model is based on the central bank's ability to mitigate losses using a quadratic criterion subject to the linear structure of the economy. This study examines the United States Federal Reserve's (Fed) monetary policy in different economic environments. It provides an empirical solution to the central bank's optimisation problem when preferences are asymmetric in both in˛ation and output gaps. The study tested for structural breaks and uncovered potential evidence of nonlinearities in the Fed's reaction function, which provides more information on policy objective. The empirical evidence suggests that the Fed's policy rate differs in these periods. This strongly indicates the presence of asymmetry. Further evidence suggests that the predictive power of the estimated model increases when a smoothing process is allowed. (original abstract)
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ISSN
2451-3458
Language
eng
URI / DOI
http://dx.doi.org/10.1515/openec-2020-0111
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