Skip to main content
Article thumbnail
Location of Repository

Estimating US persistent and transitory monetary shocks: implications for monetary policy

By Juan Angel Lafuente, Rafaela Pérez and Jesús Ruiz


This paper proposes an estimation method for persistent and transitory monetary shocks using the monetary policy modeling proposed in Andolfatto et al, [Journal of Monetary Economics, 55 (2008), pp.: 406-422]. The contribution of the paper is threefold: a) to deal with non-Gaussian innovations, we consider a convenient reformulation of the state-space representation that enables us to use the Kalman filter as an optimal estimation algorithm. Now the state equation allows expectations play a significant role in explaining the future time evolution of monetary shocks; b) it offers the possibility to perform maximum likelihood estimation for all the parameters involved in the monetary policy, and c) as a consequence, we can estimate the conditional probability that a regime change has occurred in the current period given an observed monetary shock. Empirical evidence on US monetary policy making is provided through the lens of a Taylor rule, suggesting that the Fed’s policy was implemented accordingly with the macroeconomic conditions after the Great Moderation. The use of the particle filter produces similar quantitative and qualitative findings. However, our procedure has much less computational cost.Kalman filter, Non-normality, Particle filter, Monetary policy

OAI identifier:

Suggested articles


  1. (2008). Are inflation expectations rational?”,
  2. (1993). Discretion versus policy rules in practice”.
  3. (2006). Estimating Central Banks’ preferences from a time-varying empirical reaction function”,
  4. (2007). Estimating macroeconomic models: A likelihood approach”,
  5. (2003). Historical monetary policy analysis and the Taylor rule”,
  6. (1998). Interest and Prices,
  7. (2010). Monetary Policy and the Housing Bubble”, Speech at the Annual Meeting of the American Economic Association,
  8. (2004). Monetary policy, composite leading economic indicators and predicting the 2001 recession”,
  9. (2008). Monetary Policy, Inflation and the Business Cycle,
  10. Rubio-Ramírez (2010), “Fortune or Virtue: Time-Variant Volatilities Versus Parameter Drifting
  11. (2004). Sequential Monte Carlo Filtering: an example”,
  12. (1994). Time Series Analysis,
  13. (2006). Were there regime switches in

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.