Federal Reserve Chairs and Monetary Regimes

What is it about?

This paper extends prior research by introducing a novel econometric framework---Regime-Dependent Granger Causality---to analyse the systematic elements of United States (US) monetary policy. Employing vector autoregressive models allowing for temporary Granger causality, we examine the association between monetary policy regimes---Taylor rules and Monetary Feedback rules---and the tenures of Federal Reserve Chairs. The analysis identifies the Global Financial Crisis period as a critical juncture. Taylor rule regimes predominated between 1965 and 2004, whereas Monetary Feedback regimes became more prominent from 1984 to 2019, with notable deviations during the Burns--Miller tenure and post-2004 under Bernanke. Monte Carlo simulations affirm the robustness of these findings. The study underscores the increasing relevance of Monetary Feedback rules in understanding the evolving nature of systematic US monetary policy, particularly in the aftermath of the crisis.

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Photo by Elsa Olofsson on Unsplash

Photo by Elsa Olofsson on Unsplash

Why is it important?

Shows the evolving nature of US systematic monetary policies. Taylor rules are not very useful to summarize the US monetary policy conduct since 2004 whereas various monetary aggregates are.