A multivariate regime-switching model for monetary policy is confronted with U.S. data. The best fit allows time variation in disturbance variances only. With coefficients allowed to change, the best fit is with change only in the monetary policy rule and there are three estimated regimes...

Drastic changes in central bank operations and monetary institutions in recent years have made previously standard approaches to explaining the determination of the price level obsolete. Recent expansions of central bank balance sheets and of the levels of rich-country sovereign debt, as well as...

The paper generalizes the Taylor principle—the proposition that central banks can stabilize the macroeconomy by raising their interest rate instrument more than one-for-one in response to higher inflation—to an environment in which reaction coefficients in the monetary policy rule change...

Farmer, Waggoner, and Zha (2009) (FWZ) show that a new Keynesian model with regime-switching monetary policy can support multiple solutions, appearing to contradict findings in Davig and Leeper (2007) (DL). The explanation is straightforward: FWZ derive solutions using a model that differs from...

Troy Davig and Eric Leeper (2007) have proposed a condition they call the generalized Taylor principle to rule out indeterminate equilibria in a version of the new-Keynesian model where the parameters of the policy rule follow a Markov-switching process. We show that although their condition...

We use a Bayesian Markov Chain Monte Carlo algorithm to estimate the parameters of a ?true? data-generating mechanism and those of a sequence of approximating models that a monetary authority uses to guide its decisions. Gaps between a true expectational Phillips curve and the monetary...