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 5: Structural Estimates

- alternative normalization of the orthogonality conditions -

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

c1

0.79*                         3.64**

(0.08)                            (0.77)

c2

1.11**                          1.08**

(0.06)                            (0.03)

c3

0.01                              0.53

(0.02)                            (0.40)

c4

-0.17**                          -0.04

(0.01)                            (0.05)

ρ

0.65**                         0.90**

(0.02)                            (0.02)

i*

5.4                               6.0

π*

4.1                               2.5

α

0.03                             0.29

(0.04)                            (0.22)

γ

-0.31**                          -0.06

(0.02)                            (0.10)

t-type statistics
p-value

W(2) p-value

J(19) p-value

.000                            .000

.000                              .423

__________.949_____________________________.876______________

Specification:

E,-11- μ i - i * )+(1- ρ )( λ (πt -π )+y,+αλ (πt -π * )2+^2 y2}+pρi,1 - i * ) zt-11=0
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 z
t-1 correspond to the baseline measures
described in the notes to Table 1. The t-type test refers to the null hypothesis (
μZλφ) =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.

26



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