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Unconventional monetary policy reaction functions: evidence from the US

Luca Agnello 1 Vitor Castro 2, 3 Gilles Dufrénot 4 Fredj Jawadi 5 Ricardo Sousa 6, 7
1 SEAS - University of Palermo, Dept Econ Business & Stat
2 Loughborough University, Sch Business & Econ
3 NIPE - University of Minho, Econ Policies Res Unit
4 AMSE - Aix-Marseille Sciences Economiques
5 Université de Lille
6 The Economic Policies Research Unit (NIPE)
7 LSE - London School of Economics and Political Science
Abstract : We specify unconventional monetary policy reaction functions for the Fed using linear and nonlinear econometric frameworks. We find that nonstandard policy measures are largely driven by the dynamics of inflation and the output gap, with the effect being particularly strong during QE rounds. Moreover, we uncover the presence of asymmetry and regime dependence in central bank’s actions since the global financial crisis, especially concerning the response of the term spread and the shadow short rate to the growth rate of central bank reserves. From a policy perspective and given the lack of a systematic response of monetary policy to asset price growth in nonstandard times, our findings seem to corroborate the view that concerns about asset price bubbles, financial sector pro-cyclicality and systemic risk should be part of the macro-prudential policy toolkit.
Keywords : central bank reserves asset prices nonlinear models inflation output gap shadow short rate term spread unconventional monetary policy reaction function
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Journal articles
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https://hal-amu.archives-ouvertes.fr/hal-03101417
Contributor : Elisabeth Lhuillier <>
Submitted on : Thursday, January 7, 2021 - 10:11:40 AM
Last modification on : Friday, January 8, 2021 - 3:39:17 AM

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UNIV-AMU | EHESS | AMSE | UNIV-LILLE | CNRS | EC-MARSEILLE

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Luca Agnello, Vitor Castro, Gilles Dufrénot, Fredj Jawadi, Ricardo Sousa. Unconventional monetary policy reaction functions: evidence from the US. Studies in Nonlinear Dynamics and Econometrics, MIT Press, 2020, 24 (4), pp.1-18. ⟨10.1515/snde-2018-0088⟩. ⟨hal-03101417⟩

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