This file is part of IDEAS , which uses RePEc data
[ Papers |
Articles |
Software |
Books |
Chapters |
Authors |
Institutions |
JEL Classification |
NEP reports |
Search |
New papers by email |
Author registration |
Rankings |
Volunteers |
FAQ |
Blog |
Help! ]
Interest rate reaction functions and the Taylor rule in the Euro area Author info | Abstract | Publisher info | Download info | Related research | Statistics Petra Gerlach-Kristen () (WWZ, University of Basel, Petersgraben 51, CH-4003 Basel, Switzerland. )
Traditional Taylor rules, which are estimated using a level specification linking the short-term interest rate to inflation and the output gap, are unstable when estimated on euro area data and forecast poorly out of sample. We present an alternative reaction function which takes the non-stationarity of the data into account. The estimated interest rate rule is stable and forecasts well. In contrast to the traditional Taylor rule, we find a significant role for the long rate, which we argue reflects shifts in the public's perception of the long-run inflation objective. JEL Classification: C22; E52.
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file . Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Paper provided by European Central Bank in its series Working Paper Series with number
258.
Download reference. The following formats are available: HTML ,
plain text ,
BibTeX ,
RIS (EndNote),
ReDIF
Length: 39 pages
Date of creation: Sep 2003Date of revision:
Handle: RePEc:ecb:ecbwps:20030258Contact details of provider: Postal: Postfach 16 03 19, Frankfurt am Main, Germany Phone: +49 69 1344 0 Fax: +49 69 1344 6000 Web page: http://www.ecb.europa.eu/home/html/index.en.html More information through EDIRC
Order Information: Postal: Press and Information Division, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany Email:
For technical questions regarding this item, or to correct its listing, contact: (Official Publications).
Keywords: ECB Taylor rule cointegration. Other versions of this item:
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.: Kozicki, Sharon & Tinsley, P. A., 2001.
"Term structure views of monetary policy under alternative models of agent expectations ,"
Journal of Economic Dynamics and Control ,
Elsevier, vol. 25(1-2), pages 149-184, January.
[Downloadable!] (restricted)
Marvin Goodfriend, 1998.
"Using the term structure of interest rates for monetary policy ,"
Economic Quarterly ,
Federal Reserve Bank of Richmond, issue Sum, pages 13-30.
[Downloadable!]
Stock, James H & Watson, Mark W, 1993.
"A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems ,"
Econometrica ,
Econometric Society, vol. 61(4), pages 783-820, July.
[Downloadable!] (restricted)
Other versions: Claus Brand & Nuno Cassola, 2000.
"A money demand system for Euro area M3 ,"
Working Paper Series
39, European Central Bank.
[Downloadable!]
Taylor, John B., 1993.
"Discretion versus policy rules in practice ,"
Carnegie-Rochester Conference Series on Public Policy ,
Elsevier, vol. 39, pages 195-214, December.
[Downloadable!] (restricted)
Lucas, Robert Jr, 1976.
"Econometric policy evaluation: A critique ,"
Carnegie-Rochester Conference Series on Public Policy ,
Elsevier, vol. 1, pages 19-46.
[Downloadable!] (restricted)
Kozicki, Sharon & Tinsley, P. A., 2001.
"Shifting endpoints in the term structure of interest rates ,"
Journal of Monetary Economics ,
Elsevier, vol. 47(3), pages 613-652, June.
[Downloadable!] (restricted)
Other versions: Rudebusch, Glenn D., 2002.
"Term structure evidence on interest rate smoothing and monetary policy inertia ,"
Journal of Monetary Economics ,
Elsevier, vol. 49(6), pages 1161-1187, September.
[Downloadable!] (restricted)
Other versions: Hardouvelis, Gikas A., 1994.
"The term structure spread and future changes in long and short rates in the G7 countries: Is there a puzzle? ,"
Journal of Monetary Economics ,
Elsevier, vol. 33(2), pages 255-283, April.
[Downloadable!] (restricted)
Barbara Roffia & Dieter Gerdesmeier, 2003.
"A comprehensive model on the Euro overnight rate ,"
Working Paper Series
206, European Central Bank.
[Downloadable!]
Gabriel Fagan & Jérôme Henry & Ricardo Mestre, 2001.
"An area-wide model (AWM) for the euro area ,"
Working Paper Series
42, European Central Bank.
[Downloadable!]
Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998.
"Monetary policy rules in practice Some international evidence ,"
European Economic Review ,
Elsevier, vol. 42(6), pages 1033-1067, June.
[Downloadable!] (restricted)
Other versions:
Richard Clarida & Jordi Gali & Mark Gertler, 1997.
"Monetary Policy Rules in Practice: Some International Evidence ,"
NBER Working Papers
6254, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted) Clarida, Richard & Gali, Jordi & Gertler, Mark, 1997.
"Monetary Policy Rules in Practice: Some International Evidence ,"
Working Papers
97-32, C.V. Starr Center for Applied Economics, New York University.
[Downloadable!] Clarida, Richard & Galí, Jordi & Gertler, Mark, 1997.
"Monetary Policy Rules in Practice: Some International Evidence ,"
CEPR Discussion Papers
1750, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Günter Coenen & Volker Wieland, 2000.
"A small estimated Euro area model with rational expectations and nominal rigidities ,"
Working Paper Series
30, European Central Bank.
[Downloadable!]
Other versions:
Coenen, Günter & Wieland, Volker, 2002.
"A Small Estimated Euro Area Model with Rational Expectations and Nominal Rigidities ,"
CEPR Discussion Papers
3574, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Gunter Coenen & Volker Wieland, 2000.
"A Small Estimated Euro-Area Model with Rational Expectations and Nominal Rigidities ,"
Econometric Society World Congress 2000 Contributed Papers
1284, Econometric Society.
[Downloadable!] Guenter Coenen & Volker Wieland, 2003.
"A Small Estimated Euro Area Model with Rational Expectations and Nominal Rigidities ,"
CFS Working Paper Series
2003/08, Center for Financial Studies.
[Downloadable!] Coenen, Gunter & Wieland, Volker, 2005.
"A small estimated euro area model with rational expectations and nominal rigidities ,"
European Economic Review ,
Elsevier, vol. 49(5), pages 1081-1104, July.
[Downloadable!] (restricted) Jeffery D. Amato & Thomas Laubach, 1999.
"The value of interest rate smoothing : how the private sector helps the Federal Reserve ,"
Economic Review ,
Federal Reserve Bank of Kansas City, issue Q III, pages 47-64.
[Downloadable!]
Gerlach, Stefan & Schnabel, Gert, 2000.
"The Taylor rule and interest rates in the EMU area ,"
Economics Letters ,
Elsevier, vol. 67(2), pages 165-171, May.
[Downloadable!] (restricted)
Other versions: Jon Faust & John H. Rogers & Jonathan H. Wright, 2001.
"An empirical comparison of Bundesbank and ECB monetary policy rules ,"
International Finance Discussion Papers
705, Board of Governors of the Federal Reserve System (U.S.).
[Downloadable!]
Full
references Cited by : (explanations , 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.)
Petra Gerlach-Kristen, 2004.
"Interest-Rate Smoothing: Monetary Policy Inertia or Unobserved Variables? ,"
Contributions to Macroeconomics ,
Berkeley Electronic Press, vol. 4(1), pages 1169-1169.
[Downloadable!] (restricted)
Janko Gorter & Jan Jacobs & Jakob de Haan, 2007.
"Taylor Rules for the ECB using Consensus Data ,"
DNB Working Papers
160, Netherlands Central Bank, Research Department.
[Downloadable!]
Maria Eleftheriou & Dieter Gerdesmeier & Barbara Roffia, 2006.
"Monetary policy rules in the pre-EMU era - Is there a common rule? ,"
Working Paper Series
659, European Central Bank.
[Downloadable!]
Alexander Mihailov, 2007.
"Does Instrument Independence Matter under the Constrained Discretionof an Inflation Targeting Goal? Lessons from UK Taylor Rule Empirics ,"
Money Macro and Finance (MMF) Research Group Conference 2006
95, Money Macro and Finance Research Group.
[Downloadable!]
Paul Mizen & Tae-Hwan Kim & Alan Thanaset, 2007.
"Evaluating the Taylor Principle Over the Distribution of the Interest Rate: Evidence from the US, UK and Japan ,"
Money Macro and Finance (MMF) Research Group Conference 2006
51, Money Macro and Finance Research Group.
[Downloadable!]
Michael Lamla & Sarah M. Rupprecht, 2006.
"The Impact of ECB Communication on Financial Market Expectations ,"
Working papers
06-135, KOF Swiss Economic Institute, ETH Zurich.
[Downloadable!]
Karsten Ruth, 2007.
"Interest rate reaction functions for the euro area ,"
Empirical Economics ,
Springer, vol. 33(3), pages 541-569, November.
[Downloadable!] (restricted)
Ansgar Belke & Thorsten Polleit, 2006.
"How the ECB and the US Fed Set Interest Rates ,"
Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim
269/2006, Department of Economics, University of Hohenheim, Germany.
[Downloadable!]
Other versions: Alexander Mihailov, 2005.
"Has More Independence Affected Bank of England's Reaction Function under Inflation Targeting? Lessons from Taylor Rule Empirics ,"
Economics Discussion Papers
601, University of Essex, Department of Economics.
[Downloadable!]
Heather Anderson & Mardi Dungey & Denise Osborn & Farshid Vahid, 2007.
"Constructing Historical Euro Area Data ,"
Money Macro and Finance (MMF) Research Group Conference 2006
99, Money Macro and Finance Research Group.
[Downloadable!]
Other versions: Ruth, Karsten, 2004.
"Interest rate reaction functions for the euro area Evidence from panel data analysis ,"
Discussion Paper Series 1: Economic Studies
2004,33, Deutsche Bundesbank, Research Centre.
[Downloadable!]
Gerberding, Christina & Seitz, Franz & Worms, Andreas, 2007.
"Money-based interest rate rules: lessons from German data ,"
Discussion Paper Series 1: Economic Studies
2007,06, Deutsche Bundesbank, Research Centre.
[Downloadable!]
Kai Carstensen & Roberta Colavecchio, 2004.
"Did the Revision of the ECB Monetary Policy Strategy Affect the Reaction Function? ,"
Kiel Working Papers
1221, Kiel Institute for the World Economy.
[Downloadable!]
Stephan Sauer & Jan-Egbert Sturm, 2003.
"Using Taylor Rules to Understand ECB Monetary Policy ,"
CESifo Working Paper Series
CESifo Working Paper No. , CESifo GmbH.
[Downloadable!]
Linda S. Goldberg & Michael W. Klein, 2005.
"Establishing Credibility: Evolving Perceptions of the European Central Bank ,"
The Institute for International Integration Studies Discussion Paper Series
iiisdp105, IIIS.
[Downloadable!]
Other versions:
Linda S. Goldberg & Michael W. Klein, 2005.
"Establishing Credibility: Evolving Perceptions of the European Central Bank ,"
NBER Working Papers
11792, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted) Linda S. Goldberg & Michael W. Klein, 2007.
"Establishing Credibility: Evolving Perceptions of the European Central Bank ,"
The Institute for International Integration Studies Discussion Paper Series
iiisdp194, IIIS.
[Downloadable!] Linda S. Goldberg & Michael W. Klein, 2005.
"Establishing credibility: evolving perceptions of the European Central Bank ,"
Staff Reports
231, Federal Reserve Bank of New York.
[Downloadable!] P. Siklos & M. Bohl, 2006.
"Asset Prices as Indicators of Euro Area Monetary Policy: An Empirical Assessment of Their Role in a Taylor Rule ,"
Working Papers
eg0053, Wilfrid Laurier University, Department of Economics, revised 2006.
[Downloadable!]
Other versions:
Access and
download statistics Did you know? RePEc also has a blog .
This page was last updated on 2008-7-25.
This information is provided to you by IDEAS at the Department of Economics , College of Liberal Arts and Sciences , University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics .