On the Robustness of the "Taylor Rule" in the EMU
AbstractFollowing 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 InfoPaper provided by European University Institute in its series Economics Working Papers with number ECO2003/17.
Date of creation: 2003
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Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-07-29 (All new papers)
- NEP-EEC-2003-07-29 (European Economics)
- NEP-FIN-2003-07-29 (Finance)
- NEP-IFN-2003-07-29 (International Finance)
- NEP-MAC-2003-07-29 (Macroeconomics)
- NEP-MON-2003-07-29 (Monetary Economics)
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