No-Arbitrage Taylor Rules with Switching Regimes

• 成果类型: Article
• 署名作者: Li, Haitao; Li, Tao; Yu, Cindy
• 署名单位: University of Michigan System; University of Michigan; City University of Hong Kong; Iowa State University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.1120.1702
• 发表日期: 2013
• 页码: 2278-2294
• 关键词: Taylor rule; term structure; regime switching; mcmc

摘要

We study the time-varying nature of U.S. monetary policies summarized by the Taylor rule based on a continuous-time regime-switching term structure model. In this model, the spot rate follows the Taylor rule and government bonds at different maturities are priced by no arbitrage. We allow the coefficients of the Taylor rule and the dynamics of inflation and output gap to be regime dependent and estimate the model using government bond yields. We find that the Fed is proactive in controlling inflation in one regime and accommodative for growth in another. Moreover, proactive monetary policies are associated with more stable inflation and output gap and therefore could have contributed to the Great Moderation. Our analysis also highlights the importance of switching regimes for term structure modeling. Without the regimes, inflation and output can explain less than 50% of the variations of bond yields. With the regimes, the two variables can explain more than 80% of the variations of bond yields.