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Monetary policy regime shifts: new evidence from time-varying interest rate rules

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Author Info
Carmine Trecroci
Matilde Vassalli

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Abstract

We estimate forward-looking interest-rate rules, for major advanced countries, allowing for time variation in their parameters. Traditional constant-parameter reaction functions likely blur the impact of i) model uncertainty, ii) conflicting objectives, iii) shifting preferences and iv) nonlinearities of policymakers choices. We find that monetary policies followed by the US, the UK, Germany, France and Italy, often described in terms of standard Taylor rules, are best summarized by feedback rules that allow for time variation in their parameters. Estimated rules point to sizeable differences in the actual conduct of monetary policies, even in the countries now belonging to the EMU. Also, our TVP specification outperforms the conventional Taylor rule in tracking the actual Fed funds rate.

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Paper provided by University of Brescia, Department of Economics in its series Working Papers with number 0602.

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Date of creation: 2006
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Handle: RePEc:ubs:wpaper:0602

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References listed on IDEAS
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  18. Muscatelli, V Anton & Tirelli, Patrizio & Trecroci, Carmine, 2002. "Does Institutional Change Really Matter? Inflation Targets, Central Bank Reform and Interest Rate Policy in the OECD Countries," Manchester School, University of Manchester, vol. 70(4), pages 487-527, Special I. [Downloadable!] (restricted)
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  19. Alex Cukierman & Stefan Gerlach, 2003. "The inflation bias revisited: theory and some international evidence," Manchester School, University of Manchester, vol. 71(5), pages 541-565, 09. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Mandler, Martin, 2007. "The Taylor rule and interest rate uncertainty in the U.S. 1955-2006," MPRA Paper 2340, University Library of Munich, Germany. [Downloadable!]
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