Inflation Targeting and Nonlinear Policy Rules: The Case of Asymmetric Preferences (new title: The Fed's monetary policy rule and U.S. inflation: The case of asymmetric preferences)



Table 4: Structural Estimates

- baseline normalization of the orthogonality conditions -

1960:1 - 1979:2             1982:4 2003:2

c1

0.96**                         1.35**

(0.03)                            (0.04)

c2

1.15**                         0.34**

(0.16)                            (0.08)

c3

0.03                             0.13

(0.02)                            (0.11)

c4

-0.17**                          -0.01

(0.03)                            (0.01)

ρ

0.70**                         0.73**

(0.04)                            (0.02)

i*

5.4                               6.0

π*

4.2                               2.5

α

0.05                            0.20

(0.04)                            (0.18)

γ

-0.29**                          -0.06

(0.02)                            (0.10)

t-type statistics
p-value

W(2) p-value

J(19) p-value

.000                            .000

.000                             .530

___________.950______________________________.895_______________

Specification:

Et-1I - μ(it - i*)+(1 - ρ)f(π, - π)+ λyt + α(πt - π)2 + γλУ2 '' + ρi-1 - i*) zt-11 = 0
∣L κφ               V           κ 2            2κ J            J

Notes: This table reports the nonlinear GMM estimates of the structural parameters α and
γ. The estimates of the reduced-form coefficients are recovered from the estimates of the
structural parameters while the standard errors are computed using the delta method.
Inflation, output gap and the instrument set zt-1 correspond to the baseline measures
described in the notes to Table 1. The t-type test refers to the null hypothesis (μZκφ) =0.
W(n) refers to the Wald statistics of the test for n parameter restrictions, which is
distributed as a χ2(n) under the joint null hypothesis α=γ=0. J(m) refers to the statistics of
Hansen’s test for m overidentifying restrictions which is distributed as a χ2(m) under the
null hypothesis of valid overidentifying restrictions. The superscript ** and * denote the
rejection of the null hypothesis that the true coefficient is zero at the 1 percent and 5
percent significance levels, respectively.

25



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