Policy rate decisions and unbiased parameter estimation in typical monetary policy rules

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Policy rate decisions and unbiased parameter estimation in typical monetary policy rules

Author Info

Jiri Podpiera () (Corresponding address: External Economic Relations Division, Czech National Bank, Na P?íkop? 28, 115 03, Prague 1, Czech Republic.)

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Jiri Podpiera

Abstract

Policymakers do not always follow a simple rule for setting policy rates for various reasons and thus their choices are co-driven by a decision to follow a rule or not. Consequently, some observations are censored and cause bias in conventional estimators of typical Taylor rules. To account for the censored and discrete process of policy rate setting, I devise a new method for monetary policy rule estimation and demonstrate its ability to outperform the existing conventional estimators using two examples. JEL Classification: E4, E5.

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Paper provided by European Central Bank in its series Working Paper Series with number 771.

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Length: 27 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:ecb:ecbwps:20070771

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This paper has been announced in the following NEP Reports:

NEP-ALL-2007-07-07 (All new papers)
NEP-CBA-2007-07-07 (Central Banking)
NEP-MAC-2007-07-07 (Macroeconomics)
NEP-MON-2007-07-07 (Monetary Economics)

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