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Using Taylor Rules as Efficiency Benchmarks

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Author Info
Diana N. Weymark () (Department of Economics, Vanderbilt University)

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Abstract

In this article, benchmark Taylor rules are obtained as the solution to a dynamic programming problem in which interest rates are chosen to minimize the discounted sum of observed inflation and output variations. The properties of these benchmark rules are used to derive efficiency conditions that are amenable to estimation. Estimated efficient ranges for the coefficients in the benchmark rule are used to characterize efficient classes of rules for Canada, France, Germany, Italy, the United Kingdom, and the United States, and to assess the efficiency of the interest rate policies actually employed in these countries from the early 1980s onwards.

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File URL: http://www.vanderbilt.edu/econ/wparchive/workpaper/vu00-w43R.pdf
File Format: application/pdf
File Function: Revised version, 2001
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Publisher Info
Paper provided by Department of Economics, Vanderbilt University in its series Working Papers with number 0043.

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Date of creation: Oct 2000
Date of revision: Sep 2001
Handle: RePEc:van:wpaper:0043

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Web page: http://sitemason.vanderbilt.edu/econ/
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Related research
Keywords: interest rate rule; monetary policy rule; Taylor rule;

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

References listed on IDEAS
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  5. Hendry, David F, 1988. "The Encompassing Implications of Feedback versus Feedforward Mechanisms in Econometrics," Oxford Economic Papers, Oxford University Press, vol. 40(1), pages 132-49, March. [Downloadable!] (restricted)
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  8. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-86, September. [Downloadable!] (restricted)
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  12. Ball, Laurence, 1999. "Efficient Rules for Monetary Policy," International Finance, Blackwell Publishing, vol. 2(1), pages 63-83, April. [Downloadable!] (restricted)
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  13. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November. [Downloadable!] (restricted)
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  14. Julio J. Rotemberg & Michael Woodford, 1998. "Interest-Rate Rules in an Estimated Sticky Price Model," NBER Working Papers 6618, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. 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. [Downloadable!] (restricted)
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  17. Bennett T. McCallum, . "The Alleged Instability of Nominal Income Targeting," GSIA Working Papers 1998-20, Carnegie Mellon University, Tepper School of Business.
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  18. Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  19. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters, in: Monetary Policy Rules, pages 319-348 National Bureau of Economic Research, Inc. [Downloadable!]
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  20. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June. [Downloadable!] (restricted)
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  21. Christopher A. Sims, 2001. "Pitfalls of a Minimax Approach to Model Uncertainty," American Economic Review, American Economic Association, vol. 91(2), pages 51-54, May. [Downloadable!] (restricted)
  22. Alexei Onatski & James H. Stock, 2000. "Robust Monetary Policy Under Model Uncertainty in a Small Model of the U.S. Economy," NBER Working Papers 7490, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  23. Laurence M. Ball, 1999. "Policy Rules for Open Economies," NBER Chapters, in: Monetary Policy Rules, pages 127-156 National Bureau of Economic Research, Inc. [Downloadable!]
Full references

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. Gerberding, Christina & Worms, Andreas & Seitz, Franz, 2004. "How the Bundesbank really conducted monetary policy : An analysis based on real-time data," Discussion Paper Series 1: Economic Studies 2004,25, Deutsche Bundesbank, Research Centre. [Downloadable!]
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