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

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  • Podpiera, Jirí

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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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0771.

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Date of creation: Jun 2007
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Handle: RePEc:ecb:ecbwps:20070771

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Keywords: Bias in parameters; monetary policy; policy rule;

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Cited by:
  1. Podpiera, Jirí, 2008. "The role of ad hoc factors in policy rate settings," Economic Modelling, Elsevier, vol. 25(5), pages 1003-1010, September.

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