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The relative performance of alternative Taylor rule specifications

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Author Info

  • Adriana Z. Fernandez
  • Evan F. Koenig
  • Alex Nikolsko-Rzhevskyy

Abstract

We look at how well several alternative Taylor rule specifications describe Federal Reserve policy decisions in real time, using the newly developed Giacomini and Rossi (2007) test for non-nested model selection in the presence of (possible) parameter instability. Further, we isolate those Taylor rule features that are most important for achieving relatively strong real-time performance. A second-order partial adjustment version of the Koenig (2004a) model performs consistently better than alternative specifications. Key features of this rule are the partial adjustment of the federal funds rate toward an equilibrium rate that depends on the unemployment rate and forward-looking inflation measures.

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Bibliographic Info

Article provided by Federal Reserve Bank of Dallas in its journal Staff Papers.

Volume (Year): (2008)
Issue (Month): Jun ()
Pages:

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Handle: RePEc:fip:feddst:y:2008:i:jun:n:6

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Related research

Keywords: Taylor's rule ; Real-time data ; Monetary policy - United States ; Forecasting;

References

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Cited by:
  1. Barbara Rossi, 2011. "Advances in Forecasting Under Instability," Working Papers 11-20, Duke University, Department of Economics.
  2. Matthew Greenwood-Nimmo & Youngcheol Shin, 2011. "Shifting Preferences at the Fed: Evidence from Rolling Dynamic Multipliers and Impulse Response Analysis," Working Papers 2011-057, Madras School of Economics,Chennai,India.

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