Since Taylor’s 1993 paper researchers have devoted a lot effort to estimation of monetary policy rules. Taylor showed that a simple central bank reaction function, with the interest rate as monetary policy instrument and inflation and output gap as explanatory variables, mimics the Fed funds rate pretty well during the period from 1987 to 1992. Often, the Taylor rule coefficients are interpreted as if they reflect central bank’s preferences. However, this may be misleading. In this paper we show that Taylor rule coefficients are complicated terms consisting of preference parameters as well as parameters given by the structure of the economy. We illustrate our conclusion that Taylor rule coefficients cannot be interpreted as reflecting central bank preferences by estimating standard forward-looking Taylor rules for the Bundesbank, the Fed and UK and confront these with our results obtained by a multi-equation GMM approach in order to detect central bank preferences
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Did you know? Each page is provided with a technical contact, in case something is not right with the supplied information. See under "publisher info".