Making a Weak Instrument Set Stronger: Factor-Based Estimation of the Taylor Rule

Arbeitspapier

The problem of weak identification has recently attracted attention in the analysis of structural macroeconomic models. Using robust methods can result in large confidence sets making inference difficult. We overcome this problem in the analysis of a forward-looking Taylor rule by seeking stronger instruments. We suggest exploiting information from a large macroeconomic data set by generating factors and using them as additional instruments. This approach results in a stronger instrument set and hence smaller weak-identification robust confidence sets. It allows us to conclude that there has been a shift in monetary policy from the pre-Volcker regime to the Volcker-Greenspan tenure.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bonn Econ Discussion Papers ; No. 13/2011

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Monetary Policy ; Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
• Subject: Taylor Rule ; Weak Instruments ; Factor Models

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Mirza, Harun ; Storjohann, Lidia
• Event: Veröffentlichung
• (who): University of Bonn, Bonn Graduate School of Economics (BGSE)
• (where): Bonn
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/74649
• Last update: 10.03.2025, 11:43 AM CET