In this paper, we consider estimation of a time-varying parameter model for a forward-looking monetary policy rule, by employing ex-post data. A Heckman-type (1976) two-step procedure is employed in order to deal with endogeneity in the regressors. This allows us to econometrically take into...

Several recent papers conclude that U.S. real GDP is trend stationary, implying that all shocks are transitory and the long run path is deterministic. These inferences fail to take into account two problems: the distortion of test size in finite samples due to data-based model selection and the...