Economics Theses and Dissertations

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Browsing Economics Theses and Dissertations by Author "Check, Adam"

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    REGIME SWITCHING AND THE MONETARY ECONOMY
    (University of Oregon, 2016-10-27) Check, Adam; Piger, Jeremy
    For the empirical macroeconomist, accounting for nonlinearities in data series by using regime switching techniques has a long history. Over the past 25 years, there have been tremendous advances in both the estimation of regime switching and the incorporation of regime switching into macroeconomic models. In this dissertation, I apply techniques from this literature to study two topics that are of particular relevance to the conduct of monetary policy: asset bubbles and the Federal Reserve’s policy reaction function. My first chapter utilizes a recently developed Markov-Switching model in order to test for asset bubbles in simulated data. I find that this flexible model is able to detect asset bubbles in about 75% of simulations. In my second and third chapters, I focus on the Federal Reserve’s policy reaction function. My second chapter advances the literature in two important directions. First, it uses meeting- based timing to more properly account for the target Federal Funds rate; second, it allows for the inclusion of up to 14 economic variables. I find that the long-run inflation response coefficient is larger than had been found in previous studies, and that increasing the number of economic variables that can enter the model improves both in-sample fit and out-of-sample forecasting ability. In my third chapter, I introduce a new econometric model that allows for Markov-Switching, but can also remove variables from the model, or enforce a restriction that there is no regime switching. My findings indicate that the majority of coefficients in the Federal Reserve’s policy reaction function have not changed over time.