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The European Central Bank, the Federal Reserve and the Bank of England: is the Taylor Rule an useful benchmark for the last decade?

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  • Forte, Antonio

Abstract

The Taylor rule has been used in many studies in order to analyse the monetary policies. In my work I focus on the Euro era and compare the ECB with other two central banks, the Fed and the BoE. A very interesting result comes out from the analysis: it seems that these central banks do not observe the inflation course before deciding about the variation of the interest rates. This result can be linked to two ideas: firstly, the use of stationary time series drops out the significance of the inflation gap as regressor; secondly, a really forward looking central bank focuses on other macroeconomic leading indicators instead of examining the realized or expected inflation gap.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18309.

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Date of creation: Nov 2009
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Handle: RePEc:pra:mprapa:18309

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Keywords: Taylor rule; monetary policy; European Central Bank; Federal Reserve; Bank of England; Euro; Exchange rates.;

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References

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  1. Forte, Antonio, 2009. "The stability of the inflation rate in the Euro area: the role of Globalization and labour market," MPRA Paper 16587, University Library of Munich, Germany.
  2. Florens, C. & Jondeau, E. & Le Bihan, H., 2001. "Assessing GMM Estimates of the Federal Reserve Reaction Function," Working papers 83, Banque de France.
  3. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  4. Janko Gorter & Jan Jacobs & Jakob de Haan, 2007. "Taylor Rules for the ECB using Consensus Data," DNB Working Papers 160, Netherlands Central Bank, Research Department.
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  8. Assenmacher-Wesche, Katrin & Gerlach, Stefan, 2008. "Interpreting euro area inflation at high and low frequencies," European Economic Review, Elsevier, vol. 52(6), pages 964-986, August.
  9. Fourçans, André & Vranceanu, Radu, 2002. "ECB Monetary Policy Rule: Some Theory and Empirical Evidence," ESSEC Working Papers DR 02008, ESSEC Research Center, ESSEC Business School.
  10. Stephen Cecchetti & Guy Debelle, 2005. "Has the inflation process changed?," BIS Working Papers 185, Bank for International Settlements.
  11. Carstensen, Kai, 2006. "Estimating the ECB policy reaction function," Munich Reprints in Economics 19941, University of Munich, Department of Economics.
  12. Richard H. Clarida & Mark Gertler, 1997. "How the Bundesbank Conducts Monetary Policy," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 363-412 National Bureau of Economic Research, Inc.
  13. Robert Tchaidze & Alina Carare, 2005. "The Use and Abuse of Taylor Rules," IMF Working Papers 05/148, International Monetary Fund.
  14. Zeno Rotondi & Giacomo Vaciago, 2007. "Lessons from the ECB Experience: Frankfurt Still Matters!," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 36(2), pages 147-170, 07.
  15. Forte, Antonio, 2009. "The pass-through effect: a twofold analysis," MPRA Paper 16527, University Library of Munich, Germany.
  16. Laurence Ball & Robert Tchaidze, 2002. "The Fed and the New Economy," NBER Working Papers 8785, National Bureau of Economic Research, Inc.
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  22. Jens R. Clausen & Carsten-Patrick Meier, 2003. "Did the Bundesbank Follow a Taylor Rule? An Analysis Based on Real-Time Data," Kiel Working Papers 1180, Kiel Institute for the World Economy.
  23. Giannone, Domenico & Lenza, Michele & Reichlin, Lucrezia, 2007. "Explaining The Great Moderation: It Is Not The Shocks," CEPR Discussion Papers 6600, C.E.P.R. Discussion Papers.
  24. Zeno Rotondi & Giacomo Vaciago, 2007. "Lessons from the ECB experience: Frankfurt still matters!," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0070, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  25. Gabriele Galati & William R. Melick, 2006. "The evolving inflation process: an overview," BIS Working Papers 196, Bank for International Settlements.
  26. Claudio E. V. Borio & Andrew Filardo, 2007. "Globalisation and inflation: New cross-country evidence on the global determinants of domestic inflation," BIS Working Papers 227, Bank for International Settlements.
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  28. Ullrich, Katrin, 2003. "A Comparison Between the Fed and the ECB: Taylor Rules," ZEW Discussion Papers 03-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  29. Stephan Sauer & Jan-Egbert Sturm, 2003. "Using Taylor Rules to Understand ECB Monetary Policy," CESifo Working Paper Series 1110, CESifo Group Munich.
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Citations

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Cited by:
  1. Kancs, d'Artis & Kielyte, Julda, 2010. "European Integration and Labour Migration," European Integration online Papers (EIoP), European Community Studies Association Austria (ECSA-A), vol. 14, November.
  2. Emna Trabelsi, 2012. "The relationship between central bank transparency and the quality of inflation forecasts: is it U-shaped?," EERI Research Paper Series EERI_RP_2012_02, Economics and Econometrics Research Institute (EERI), Brussels.
  3. Anderson, James, 2011. "Migration of Labor in Europe. Theory and Evidence," Working Papers of Institute for Economic Forecasting 110427, Institute for Economic Forecasting.

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