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The Robustness and Efficiency of Monetary Policy Rules as Guidelines for Interest Rate Setting by the European Central Bank

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Author Info
Taylor, John B. () (Stanford University, Department of Economics)

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Abstract

This paper examines the implications of recent research on monetary policy rules for practical monetary policy making, with special emphasis on strategies for setting interest rates by the new European Central Bank (ECB). The paper draws on recent research and new simulations of a large open economy model to assess the efficiency of a simple benchmark rule in comparison with other proposed rules. The paper stresses new results on the robustness of monetary policy rules in which each rule that is optimal or good according to one model or researcher is tested for robustness by other researchers using different models. Because of the large increase in the number of economists focussing on econometric evaluation of monetary policy rules for the interest rate instrument and because of the parallel increase in the variety of models being developed for this purpose, much more evidence is becoming available on the robustness of simle monetary policy rules for the interest rate than ever before.

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Publisher Info
Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 649.

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Length: 39 pages
Date of creation: 01 Aug 1998
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Handle: RePEc:hhs:iiessp:0649

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Related research
Keywords: monetary policy rules; interest rate; efficiency; robustness; European Central Bank;

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Find related papers by JEL classification:
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

References listed on IDEAS
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  3. Persson, Torsten & Tabellini , Guido, 1997. "Political Economics and Macroeconomic Policy," Seminar Papers 630, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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  4. Hassler, John & Rodríguez Mora, José Vicente, 1997. "Employment Turnover and Unemployment Insurance," CEPR Discussion Papers 1609, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Ortega, Javier, 1997. "How (Good) Immigration is: a matching analysis," Seminar Papers 618, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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  7. Glenn D. Rudebusch & Lars E. O. Svensson, 1998. "Policy rules for inflation targeting," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
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  8. Svensson, Lars E O, 1995. "Optimal Inflation Targets, 'Conservative' Central Banks, and Linear Inflation Contracts," CEPR Discussion Papers 1249, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. M. C. Burda, . "Migration and the Option Value of Waiting," Sonderforschungsbereich 373 1995-58, Humboldt Universitaet Berlin.
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  13. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June. [Downloadable!] (restricted)
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  14. Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  15. Svensson, Lars E.O., 1997. "Inflation Targeting: Some Extensions," Seminar Papers 625, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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  16. Burda,M.C., 1995. "Unions and Wage Insurance," Papers 596, Stockholm - International Economic Studies.
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  17. Acemoglu, D. & Zilibotti, F., 1996. "Agency Costs in the Process of Development," Working papers 96-8, Massachusetts Institute of Technology (MIT), Department of Economics.
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  18. Frankel, J-A & Rose, A-K, 1996. "Economic Structure and the Decision to Adopt a Common Currency," Papers 611, Stockholm - International Economic Studies.
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  19. Hassler, John & Mora , José V. Rodríguez, 1998. "IQ, Social Mobility and Growth," Seminar Papers 635, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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  20. Persson, Mats & Persson, Torsten & Svensson, Lars E.O., 1997. "Debt, cash flow and inflation incentives: A Swedish example," Seminar Papers 613, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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