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The Explanatory Power of Monetary Policy Rules

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  • John B. Taylor

Abstract

This paper shows that the theory of monetary policy rules is able to explain, predict, and help understand a variety of phenomenon in macroeconomics and finance, including the Great Moderation, the correlation between exchange rates and interest rates, and the shift in the response of the term structure of interest rates to inflation and output. Although the theory was originally designed for normative reasons, it has turned out to have positive implications which validate it scientifically. And while initially focused on the United States, it has applied equally well in other countries.

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File URL: http://www.nber.org/papers/w13685.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13685.

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Date of creation: Dec 2007
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Publication status: published as John B Taylor, 2007. "The Explanatory Power of Monetary Policy Rules," Business Economics, Palgrave Macmillan Journals, vol. 42(4), pages 8-15, October.
Handle: RePEc:nbr:nberwo:13685

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  1. Andrew Ang & Sen Dong & Monika Piazzesi, 2007. "No-Arbitrage Taylor Rules," NBER Working Papers 13448, National Bureau of Economic Research, Inc.
  2. Charles Engel & Kenneth D. West, 2004. "Taylor Rules and the Deutschmark-Dollar Real Exchange Rate," NBER Working Papers 10995, National Bureau of Economic Research, Inc.
  3. Charles Engel & Nelson C. Mark & Kenneth D. West, 2007. "Exchange Rate Models Are Not as Bad as You Think," NBER Working Papers 13318, National Bureau of Economic Research, Inc.
  4. Fuhrer, Jeffrey C, 1996. "Monetary Policy Shifts and Long-Term Interest Rates," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1183-1209, November.
  5. John P. Judd & Bharat Trehan, 1995. "Has the Fed gotten tougher on inflation?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar31.
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Cited by:
  1. Fernando Alexandre & Vasco J. Gabriel & Pedro Bação, 2008. "Taylor-type rules versus optimal policy in a Markov-switching economy," NIPE Working Papers 15/2008, NIPE - Universidade do Minho.
  2. Giorgio Fagiolo & Andrea Roventini, 2008. "On the Scientific Status of Economic Policy: A Tale of Alternative Paradigms," Working Papers 47/2008, University of Verona, Department of Economics.
  3. Bohl , Martin T & Mayes , David G & Siklos, Pierre L, 2009. "The quality of monetary policy and inflation performance: globalization and its aftermath," Research Discussion Papers 31/2009, Bank of Finland.
  4. Pierre L. Siklos, 2009. "As Good As It Gets? The International Dimension to Canada's Monetary Policy Strategy Choices," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 292, July.
  5. Alexandre, Fernando & Bação, Pedro & Gabriel, Vasco, 2010. "Soft landing in a Markov-switching economy," Economics Letters, Elsevier, vol. 107(2), pages 169-172, May.

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