Multiple Regimes in U . S . Monetary Policy ? A Nonparametric Approach ∗

We use two different nonparametric methods to determine whether there were multiple regimes in U.S. monetary policy over the period 1955—2003. We model monetary policy using two different versions of Taylor’s rule for the nominal interest rate target. By contrast with parametric tests for regime changes, the nonparametric methods we use allow the data to determine the dimensions on which to split the sample for purposes of estimating the coefficients of the Taylor rule. We find evidence for a few structural breaks and consistent agreement between our two nonparametric methods on the dating of those breaks. keywords: monetary policy, regime change, structural break, Taylor Rule, nonparametric methods. JEL classification nos. E52, C14. Contact Information: John Duffy (Corresponding Author), Professor, Department of Economics, University of Pittsburgh, Pittsburgh, PA 15260 USA, e-mail [email protected], tel.: (412) 648-1733; fax: (412) 648-1793; Jim Engle-Warnick, Assistant Professor, Department of Economics, 855 Sherbrooke St. W., McGill University, Montreal, QC, H3A 2T7, Canada, e-mail: [email protected], tel.: (514) 398-1559; fax: (514) 398-4938. ∗We thank the Editor, Masao Ogaki, an anonymous referee, Hide Ichimura, Adrian Pagan and participants at the 2001 Society for Computational Economics Conference. Engle—Warnick acknowledges research support from the Webb Medley Fund, University of Oxford. The dataset as well as the computer programs developed for this paper are available from the authors on request.