Nonlinear monetary policy rules: Some new evidence for the

This paper derives optimal monetary policy rules in setups where certainty equiva-lence does not hold because either central bank preferences are not quadratic, and/or the aggregate supply relation is nonlinear. Analytical results show that these features lead to sign and size asymmetries, and nonlinearities in the policy rule. Reduced-form estimates indicate that U.S. monetary policy can be characterized by a nonlinear pol-icy rule after 1983, but not before 1979. This finding is consistent with the view that the Fed’s inflation preferences during the Volcker-Greenspan regime differ considerably from the ones during the Burns-Miller regime. JEL Classification: E5