Travaglini, Guido (2007): The U.S. Dynamic Taylor Rule With Multiple Breaks, 19842001.

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Abstract
This paper combines two major strands of literature: structural breaks and Taylor rules. At first, I propose a nonstandard ttest statistic for detecting multiple level and trend breaks of I(0) series by supplying theoretical and limitdistribution critical values obtained from Montecarlo experimentation. Thereafter, I introduce a forwardlooking Taylor rule expressed as a dynamic model which allows for multiple breaks and reactionfunction coefficients of the leads of inflation, of the output gap and of an equity market index. Sequential GMM estimation of the model, applied to the Effective Federal Funds Rate for the period 1984:012001:06, produces three main interesting results: the existence of significant structural breaks, the substantial role played by inflation in the FOMC decisions and a marked equity targeting policy approach. Such results reveal departures from rationality, determined by structured and unstructured uncertainty, which the Fed systematically attempts at reducing by administering inflation scares and misinformation about the actual Phillips curve, in order to keep the output and equity markets under control.
Item Type:  MPRA Paper 

Institution:  Università degli Studi di Roma "La Sapienza" 
Original Title:  The U.S. Dynamic Taylor Rule With Multiple Breaks, 19842001. 
Language:  English 
Keywords:  Generalized Method of Moments; Monetary Policy Rules; Multiple Breaks 
Subjects:  E  Macroeconomics and Monetary Economics > E5  Monetary Policy, Central Banking, and the Supply of Money and Credit > E58  Central Banks and Their Policies C  Mathematical and Quantitative Methods > C6  Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61  Optimization Techniques ; Programming Models ; Dynamic Analysis C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C12  Hypothesis Testing: General 
Item ID:  3419 
Depositing User:  Guido Travaglini 
Date Deposited:  14. Jun 2007 
Last Modified:  13. Feb 2013 00:52 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/3419 