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On the Robustness of the "Taylor Rule" in the EMU

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  • Maria ELEFTHERIOU

Abstract

Following a policy rule mechanically when operating monetary policy is neither realistic nor practical. Nevertheless, monetary policy rules have received a great deal of attention in recent macroeconomic research. The paper focuses on a famous interest rate rule, namely the Taylor Rule, to show that the rule parameters are robust to most of the output gap measures and the specifications considered, i.e. the inflation coefficient is above unity and the output gap coefficient is positive. The estimated rule is shown to track the actual policy performance during the EMU period remarkably well. In addition, the estimated rule is used as an indicator of macroeconomic convergence in the union and it is demonstrated that the optimal EMU rate has not been in accordance with domestic conditions in certain countries.

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Bibliographic Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2003/17.

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Date of creation: 2003
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Handle: RePEc:eui:euiwps:eco2003/17

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Cited by:
  1. Leon, Costas, 2006. "The Taylor rule: can it be supported by the data?," MPRA Paper 1650, University Library of Munich, Germany.
  2. Sousa, Pedro, 2009. "Do ECB Council Decisions represent always a Real Euro Consensus?," Working Papers 9/2009, Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE).
  3. Eleftheriou, Maria & Gerdesmeier, Dieter & Roffia, Barbara, 2006. "Monetary policy rules in the pre-EMU era: Is there a common rule?," Working Paper Series 0659, European Central Bank.
  4. Hidi, János, 2006. "A magyar monetáris politikai reakciófüggvény becslése
    [Estimating the reaction function for Hungarian monetary policy]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1178-1199.
  5. Nigel F.B. Allington & Paul A. Kattuman & Florian A. Waldmann, 2005. "One Market, One Money, One Price?," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 1(3), December.
  6. Allington, Nigel FB & Kattuman, Paul A & Waldmann, Florian A, 2005. "One Market, One Money, One Price?," MPRA Paper 835, University Library of Munich, Germany.
  7. C.J.M. Kool, 2005. "What Drives ECB Monetary Policy?," Working Papers, Utrecht School of Economics 05-03, Utrecht School of Economics.

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