Does the Federal Reserve Follow a Non-Linear Taylor Rule?

The Taylor rule has become one of the most studied strategies for monetary policy. Yet, little is known whether the Federal Reserve follows a non-linear Taylor rule. This paper employs the smooth transition regression model and asks the question: does the Federal Reserve change its policy-rule according to the level of inflation and/or the output gap? I find that the Federal Reserve does follow a non-linear Taylor rule and, more importantly, that the Federal Reserve followed a non-linear Taylor rule during the golden era of monetary policy, 1985-2005, and a linear Taylor rule throughout the dark age of monetary policy, 1960-1979. Thus, good monetary policy is associated with a non-linear Taylor rule: once inflation approaches a certain threshold, the Federal Reserve adjusts its policy-rule and begins to respond more forcefully to inflation.

Franceschina Prevosti, Mary Prevosti, Doppelbildnis

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Mary Brand als Salomé, Rollenbild, in: Oscar Wilde: Salomé

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Mary Brand als Salomé, Rollenbild, in: Oscar Wilde: Salomé

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Mary Grasenick, Brustbild

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Käthe Hartmann, Arthur Hellmer, Georg Lengbach, Mary Urban, Rollenbild, Gruppenbildnis

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Mary Muenchhoff, Ganzfigurbildnis

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Mary Muenchhoff, Kniestück

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Mary Muenchhoff, Kniestück

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Mary Muenchhoff, Ganzfigurbildnis

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Elizabeth Parkina, Mary Parkinson, Gaw, {[N.N.], Gruppenbildnis, Engelberg, 1901

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Mary Urban, Kniestück

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Mary Urban, Rollenbild, Brustbild

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Mary Urban, Rollenbild

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Mary Urban, Georg Lengbach, Arthur Hellmer, Käthe Hartmann, Rollenbild, Gruppenbildnis

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