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A Survey of Taylor-Type Monetary Policy Rules

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  • Nell Hamalainen
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    Abstract

    There are numerous ways to specify monetary-policy reaction functions in economic models. In recent years, the practice of using the Taylor rule, or more generally, Taylor-type rules, as a monetary policy rule has become more wide spread in the economic literature. The structure of this rule is simple and tractable but at the same time captures the essence of the behaviour of the monetary authority. In this paper, we present a brief survey of the literature on the properties of Taylor-type monetary policy rules. We review the modifications made to the original Taylor rule and their justifications, the empirical and theoretical issues related to the use and design of the rule, the use of calibrated versus estimated Taylor-type rules in economic models, and the practices of choosing an optimal monetary policy rule. Il existe bien des façons de préciser les fonctions de réaction de la politique monétaire dans les modèles économiques. Ces dernières années, le recours à la règle de Taylor, ou de manière plus générale, aux règles tayloriennes, à titre de règle de la politique monétaire, est devenu de plus en plus répandu dans les ouvrages économiques. La structure de cette règle est simple et souple et saisit par ailleurs l’essence même du comportement de l’autorité monétaire. Dans le présent document, nous effectuons un bref survol des ouvrages traitant des propriétés de règles tayloriennes appliquées à la politique monétaire. Nous passons en revue les modifications apportées à la règle initiale de Taylor et leur justification, les enjeux empiriques et théoriques liés à la conception et à l’utilisation de la règle, l’utilisation de règles tayloriennes calibrées versus estimées dans les modèles économiques, et les pratiques de sélection d’une règle de politique monétaire optimale.

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    Paper provided by Department of Finance Canada in its series Working Papers-Department of Finance Canada with number 2004-02.

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    Handle: RePEc:fca:wpfnca:2004-02

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