Conclusions
We estimate augmented Taylor rules with real time data which feature a measure of financial uncertainty among the explanatory variables. We find evidence of a significant policy response to financial uncertainty during the Greenspan–Bernanke period. We then propose an estimate of the "risk management-driven policy rate gap", which is the gap between the actual rate and a counterfactual policy rate implemented in absence of risk management. Such a gap is negative, an evidence consistent with a cautious approach (i.e., a loose monetary policy) by the Federal Reserve in presence of financial uncertainty The median value of the policy rate gap is 30 basis points, i.e., close to one standard policy move by the Federal Reserve, but larger values are detected in correspondence of large jumps in financial uncertainty, in particular those occurred in correspondence of the Black Monday and the 2008 credit crunch. Our findings point to the need of understanding how optimal monetary policy should be conducted in presence of uncertainty shocks. Recent attempts along this line are Basu and Bundick (2015) and Seneca (2018).
