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Dissecting Taylor Rules in a Structural VAR

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  • Woon Gyu Choi
  • Yi Wen

Abstract

This paper uncovers Taylor rules from estimated monetary policy reactions using a structural VAR on U.S. data from 1959 to 2009. These Taylor rules reveal the dynamic nature of policy responses to different structural shocks. We find that U.S. monetary policy has been far more responsive over time to demand shocks than to supply shocks, and more aggressive toward inflation than output growth. Our estimated dynamic policy coefficients characterize the style of policy as a "bang-bang" control for the pre-1979 period and as a gradual control for the post-1979 period.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/20.

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Length: 27
Date of creation: 01 Jan 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/20

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Keywords: Economic models; External shocks; Inflation targeting; Productivity; Stabilization measures; monetary economics; gdp deflator; aggregate demand; optimal monetary policy; money supply; macroeconomic stability; monetary fund; monetary authority; inflationary pressures; monetary transmission; real interest rate; rational expectations; monetary policy instruments; increase in inflation; real interest rates; rate of inflation; interest rate targeting; high inflation; relative price; nominal interest rate; inflation response; monetary transmission mechanism; monetary policy rules; lower inflation; monetary aggregates; monetary theory; inflation stabilization; coefficient on inflation; price stability;

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Cited by:
  1. Bernhard Herz & Stefan Hohberger, 2013. "Fiscal Policy, Monetary Regimes and Current Account Dynamics," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 21(1), pages 118-136, 02.

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