Estimating the Market-Perceived Monetary Policy Rule

James D. Hamilton, Seth Pruitt, Scott Borger

NBER Working Paper No. 16412
Issued in September 2010
NBER Program(s):   ME

We introduce a novel method for estimating a monetary policy rule using macroeconomic news. We estimate directly the policy rule agents use to form their expectations by linking news' effects on forecasts of both economic conditions and monetary policy. Evidence between 1994 and 2007 indicates that the market-perceived Federal Reserve policy rule changed: the output response vanished, and the inflation response path became more gradual but larger in long-run magnitude. These response coefficient estimates are robust to measurement and theoretical issues with both potential output and the inflation target.

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Document Object Identifier (DOI): 10.3386/w16412

Published: James D. Hamilton & Seth Pruitt & Scott Borger, 2011. "Estimating the Market-Perceived Monetary Policy Rule," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(3), pages 1-28, July. citation courtesy of

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