Is the Taylor Rule Really Different from the McCallum Rule?
AbstractWhen base velocity is a stable function of the Federal funds rate (FFR), the money base-nominal GDP targeting rule (McCallum rule) can be reparameterized and presented in terms of FFR as the policy instrument. Comparison of this McCallum modified policy rule with the popular Taylor rule suggests that these two rules and the FFR are actually closely related. Model-based evaluations of the two rules' stabilization properties indicate that the modified McCallum rule is similar to the Taylor rule. The key to this result is the degree of interest rate smoothing applied to the policy rules. (JEL "E3", "E52", "E58") Copyright 2003 Western Economic Association International.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Contemporary Economic Policy.
Volume (Year): 21 (2003)
Issue (Month): 4 (October)
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Other versions of this item:
- W A Razzak, 2001. "Is the Taylor rule really different from the McCallum rule?," Reserve Bank of New Zealand Discussion Paper Series DP2001/07, Reserve Bank of New Zealand.
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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