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The Use and Abuse of Taylor Rules How Precisely Can We Estimate Them?

This paper draws attention to inconsistencies in estimating simple monetary policy rules and their implications for policy advice. We simulate a macroeconomic model with a backward reaction function similar to Taylor (1993). We estimate different versions of a policy rule, using these simulated data...

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Bibliographic Details
Main Author: Tchaidze, Robert
Other Authors: Carare, Alina
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2005
Series:IMF Working Papers
Subjects:
Interest Rates
Inflation
Finance
Potential Output
Output Gap
Real Interest Rates
Deflation
Short Term Interest Rates
Production
Macroeconomics: Production
Price Level
Banks And Banking
Prices
Macroeconomics
Interest Rates: Determination, Term Structure, And Effects
Economic Theory
Production And Operations Management
United States
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:This paper draws attention to inconsistencies in estimating simple monetary policy rules and their implications for policy advice. We simulate a macroeconomic model with a backward reaction function similar to Taylor (1993). We estimate different versions of a policy rule, using these simulated data. Under certain circumstances, estimations document an illusionary presence of a lagged interest rate, or of forward-looking behavior. Our results are consistent with the fact that several authors found very different versions of monetary policy rules, all fitting the U.S. data well. We also survey the literature, providing a list of issues complicating practical use of Taylor rules
Physical Description:30 pages
ISBN:9781451861679

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