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The stability condition of a forward looking Taylor rule

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    Abstract

    Stability condition is an essential topic of monetary policy rules. If the policy rule can not satisfy the stability condition, it is difficult to treat the policy rule as the policy implementation guidelines. This paper purposes to derive the stability condition of a forward-looking Taylor rule with and without interest rate smoothing. This paper also conducts the empirical analysis of the stability condition of a forward-looking Taylor rule with data of China.

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    File URL: http://www.uq.edu.au/economics/eaerg/dp/0705.pdf
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    Paper provided by School of Economics, University of Queensland, Australia in its series EAERG Discussion Paper Series with number 0705.

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    Handle: RePEc:qld:uqeaer:07

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    1. Rudebusch, Glenn D & Svensson, Lars E O, 1998. "Policy Rules for Inflation Targeting," CEPR Discussion Papers 1999, C.E.P.R. Discussion Papers.
    2. Goodfriend, Marvin, 1987. "Interest rate smoothing and price level trend-stationarity," Journal of Monetary Economics, Elsevier, vol. 19(3), pages 335-348, May.
    3. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," CEPR Discussion Papers 1908, C.E.P.R. Discussion Papers.
    4. Bennett T. McCallum, 1989. "Could A Monetary Base Rule Have Prevented the Great Depression?," NBER Working Papers 3162, National Bureau of Economic Research, Inc.
    5. Michael Woodford, 1999. "Optimal monetary policy inertia," Proceedings, Federal Reserve Bank of San Francisco.
    6. Nicoletta Batini & Edward Nelson, 1999. "Optimal Horizons for Inflation Targeting," Computing in Economics and Finance 1999 1052, Society for Computational Economics.
    7. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, vol. 91(4), pages 964-985, September.
    8. Bennett T. McCallum, 1993. "Specification and Analysis of a Monetary Policy Rule for Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 11(2), pages 1-45, December.
    9. Williams, John C. & Levin, Andrew T. & Wieland, Volker, 2001. "The performance of forecast-based monetary policy rules under model uncertainty," Working Paper Series 0068, European Central Bank.
    10. 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.
    11. Woodford, Michael, 1999. "Optimal monetary policy inertia," CFS Working Paper Series 1999/09, Center for Financial Studies (CFS).
    12. Marvin Goodfriend, 1990. "Interest rates and the conduct of monetary policy," Working Paper 90-06, Federal Reserve Bank of Richmond.
    13. Rafael Domenech & Mayte Ledo & David Taguas, 2001. "A Small Forward-Looking Macroeconomic Model for EMU," Working Papers 0102, BBVA Bank, Economic Research Department.
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