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Is the Taylor Rule Really Different from the McCallum Rule?

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Author Info
W. A. Razzak

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Abstract

When 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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File URL: http://www.blackwell-synergy.com/doi/abs/10.1093/cep/byg024
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Publisher Info
Article provided by Western Economic Association International in its journal Contemporary Economic Policy.

Volume (Year): 21 (2003)
Issue (Month): 4 (October)
Pages: 445-457
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Handle: RePEc:bla:coecpo:v:21:y:2003:i:4:p:445-457

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Orphanides, Athanasios, 1999. "The Quest for Prosperity Without Inflation," Working Paper Series 93, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
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  2. Richard Dennis, 2006. "The policy preferences of the US Federal Reserve," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(1), pages 55-77. [Downloadable!]
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  3. Arturo Estrella & Jeffrey C. Fuhrer, 2002. "Dynamic Inconsistencies: Counterfactual Implications of a Class of Rational-Expectations Models," American Economic Review, American Economic Association, vol. 92(4), pages 1013-1028, September. [Downloadable!]
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  4. Julio J. Rotemberg & Michael Woodford, 1999. "Interest Rate Rules in an Estimated Sticky Price Model," NBER Chapters, in: Monetary Policy Rules, pages 57-126 National Bureau of Economic Research, Inc. [Downloadable!]
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  5. Laurence H. Meyer, 2001. "Does money matter?," Review, Federal Reserve Bank of St. Louis, issue May, pages 1-16. [Downloadable!]
  6. Martin Feldstein & James H. Stock, 1994. "The Use of a Monetary Aggregate to Target Nominal GDP," NBER Chapters, in: Monetary Policy, pages 7-69 National Bureau of Economic Research, Inc. [Downloadable!]
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  1. Athanasios Orphanides, 2003. "Historical monetary policy analysis and the Taylor rule," Finance and Economics Discussion Series 2003-36, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  2. Danfeng Kong, . "Monetary policy rule for China - 1994-2006," EAERG Discussion Paper Series 1405, School of Economics, University of Queensland, Australia. [Downloadable!]
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