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Is the Taylor rule really different from the McCallum rule?

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When base velocity is a stable function of the Federal funds rate (FFR), the money base-nominal GDP targeting rule (McCallum rule) can be re-parameterised and presented in terms of FFR as the policy instrument. Comparison of this McCallum modified policy rule with the popular Taylor rule suggests that these two rules and the FFR are actually cointegrated. Model-based evaluations of the two rules' stabilisation properties indicate that the modified McCallum rule is similar to the Taylor rule. The key to this result is the degree of interest rate smoothing applied to the policy rules.

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File URL: http://www.rbnz.govt.nz/research_and_publications/discussion_papers/2001/dp01_07.pdf
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Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2001/07.

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Length: 29p
Date of creation: Oct 2001
Date of revision:
Handle: RePEc:nzb:nzbdps:2001/07

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  1. Martin Feldstein & James H. Stock, 1994. "The Use of a Monetary Aggregate to Target Nominal GDP," NBER Chapters, in: Monetary Policy, pages 7-69 National Bureau of Economic Research, Inc.
  2. Arturo Extrella & Jeffrey C. Fuhrer, 1998. "Dynamic inconsistencies: counterfactual implications of a class of rational expectations models," Working Papers 98-5, Federal Reserve Bank of Boston.
  3. Julio J. Rotemberg & Michael Woodford, 1999. "Interest Rate Rules in an Estimated Sticky Price Model," NBER Chapters, in: Monetary Policy Rules, pages 57-126 National Bureau of Economic Research, Inc.
  4. Richard Dennis, 2001. "The policy preferences of the U.S. Federal Reserve," Working Paper Series 2001-08, Federal Reserve Bank of San Francisco.
  5. Orphanides, Athanasios, 2003. "The quest for prosperity without inflation," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 633-663, April.
  6. Laurence H. Meyer, 2001. "Does money matter?," Review, Federal Reserve Bank of St. Louis, issue May, pages 1-16.
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Cited by:
  1. Esanov, Akram & Merkl, Christian & Vinhas de Souza, LĂșcio, 2004. "Monetary Policy Rules for Russia," BOFIT Discussion Papers 11/2004, Bank of Finland, Institute for Economies in Transition.
  2. Michal Andrle & Andrew Berg & Enrico Berkes & Rafael A Portillo & Jan Vlcek & R. Armando Morales, 2013. "Money Targeting in a Modern Forecasting and Policy Analysis System: an Application to Kenya," IMF Working Papers 13/239, International Monetary Fund.
  3. Athanasios Orphanides, 2003. "Historical monetary policy analysis and the Taylor rule," Finance and Economics Discussion Series 2003-36, Board of Governors of the Federal Reserve System (U.S.).
  4. Danfeng Kong, . "Monetary policy rule for China - 1994-2006," EAERG Discussion Paper Series 1405, School of Economics, University of Queensland, Australia.
  5. Muneesh Kapur & Michael Debabrata Patra, 2012. "Alternative Monetary Policy Rules for India," IMF Working Papers 12/118, International Monetary Fund.
  6. Weshah Razzak, 2014. "New Zealand Labour Market Dynamics: Pre- and Post-global Financial Crisis," Treasury Working Paper Series 14/03, New Zealand Treasury.

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