Real-Time Taylor Rule Ambiguities

We propose a general equilibrium model of the nominal and real term structure that accounts for real-time Taylor rule risks and real-time Taylor rule ambiguities. We treat Taylor rule risks and Taylor rule ambiguities as macro variables that are observed in real-time. In the estimation we find that investors are ambiguity averse with regard to GDP and inflation risk and ambiguity loving with regard to the Fed's discretionary monetary policy actions. The estimated detection error probability is 32.3% and the ambiguity loving premium for the Fed's actions is positive and strongly upward sloping for real and nominal bonds.