It can be an issue of ongoing political debate or an issue that has not yet gained the attention of policy makers.
The reason is that central banks react to variables, such as inflation and the output gap, which are endogenous to monetary policy shocks. Endogeneity implies a correlation between regressors and the error term, and hence, an asymptotic bias.
In principle, Instrumental Variables IV estimation can solve this endogeneity problem. In practice, IV estimation poses challenges as the validity of potential instruments also depends on other economic relationships. We argue in favor of OLS estimation of monetary policy rules. To that end, we show analytically in the three-equation New Keynesian model that the asymptotic OLS bias is proportional to the fraction of the variance of regressors accounted for by monetary policy shocks.
Using Monte Carlo simulation, we then show that this relationship also holds in a quantitative model of the U. As monetary policy shocks explain only a small fraction of the variance of regressors typically included in monetary policy rules, the endogeneity bias is small.
Using simulations, we show that, for realistic sample sizes, the OLS estimator of monetary policy parameters outperforms IV estimators.The Issues Paper.
The Issues Paper [PDF KB | RTF MB] was released on 14 April and was open for submissions until 10 June Non-confidential submission are available to be viewed..
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A policy analysis paper requires students to research in depth an issue of public concern. It can be an issue of ongoing political debate or an issue that has not yet gained the attention of policy makers. Help Desk Central opened the doors to their newly renovated facility at the Computing Services Center in August HDC won the prestigious Help Desk Institutes (HDI) Team Certified Pinnacle of Excellence award in and The Office of Website Management, Bureau of Public Affairs, manages this site as a portal for information from the U.S.
External links to other Internet sites should not be construed as an endorsement of the views or privacy policies contained therein. The public’s interest in conservation is rising, according to a new analysis led by Princeton University. Based on an adapted version of Google Trends — which tracks user searches on Google — the results show that people search for conservation just as often as they do for climate change.