Asset Price Momentum and Monetary Policy: Time-varying Parameter Estimation of Taylor Rules

Authors

Anastasios G. Malliaris, Loyola University ChicagoFollow
Ramaprasad Bhar, The University of New South Wales

Document Type

Article

Publication Date

11-26-2016

Publication Title

Applied Economics

Volume

48

Issue

55

Pages

5329-5339

Abstract

In this article, we consider two new independent variables as inputs to the Taylor Rule. These are the equity and housing momentum variables and are introduced to investigate the potential usefulness of these two variables in guiding the Fed to lean against potential bubbles. Such effectiveness cannot adequately be evaluated if the Taylor Rule estimation follows the standard regression methodology that has been criticized in the literature to be econometrically incorrect. Using a time-varying parameter estimation methodology, we find that equity momentum as an input in the Taylor Rule does not contribute to changes in Fed Funds. However, the housing momentum plays an important role econometrically and can be a useful tool in setting Fed Funds rates.

Comments

This is an Accepted Manuscript of an article published by Taylor & Francis in Applied Economics on May 26, 2014, available online: http://www.tandfonline.com/doi/full/10.1080/00036846.2016.1176117?scroll=top&needAccess=true

Recommended Citation

Malliaris, Anastasios G. and Bhar, Ramaprasad. Asset Price Momentum and Monetary Policy: Time-varying Parameter Estimation of Taylor Rules. Applied Economics, 48, 55: 5329-5339, 2016. Retrieved from Loyola eCommons, School of Business: Faculty Publications and Other Works, http://dx.doi.org/10.1080/00036846.2016.1176117

Creative Commons License

This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.

Copyright Statement

© Taylor & Francis 2014