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Taylor Rules and Interest Rate Smoothing in the US and EMU

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Author Info
Efrem Castelnuovo (Bocconi University)

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Abstract

In this paper we estimate simple Taylor rules paying a particular attention to interest rate smoothing. Following English, Nelson, and Sack (2002), we employ a model in first differences to gain some insights on the presence and significance of the degree of partial ad- justment. Moreover, we estimate a nested model to take both interest rate smoothing and serially correlated deviations from various Taylor rate prescriptions into account. Our findings suggest that the lagged interest rate enters the Taylor rule in its own right, and may very well coexist with a serially correlated policy shock. Asymmetric preferences on the output gap level and financial indicators turn out to be impor- tant factors to understand Greenspan’s policy conduct. By contrast, our findings support standard regressors for the ’European’ Taylor rule.

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Paper provided by EconWPA in its series Macroeconomics with number 0303002.

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Length: 33 pages
Date of creation: 11 Mar 2003
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Handle: RePEc:wpa:wuwpma:0303002

Note: Type of Document - Acrobat PDF; prepared on HP PC; to print on HP; pages: 33; figures: included
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Related research
Keywords: Taylor rules omitted variables serial correlation interest rate smoothing;

Find related papers by JEL classification:
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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References listed on IDEAS
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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. Nicoletta Batini & Alejandro Justiniano & Paul Levine & Joseph Pearlman, 2004. "Robust Inflation-Forecast-Based Rules to Shield against Indeterminacy," Department of Economics Discussion Papers 0804, Department of Economics, University of Surrey. [Downloadable!]
    Other versions:
  2. Nicoletta Batini & Paul Levine & Joseph Pearlman, 2004. "Indeterminacy with inflation-forecast-based rules in a two-bloc model," International Finance Discussion Papers 797, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  3. Nicoletta Batini & Paul Levine, 2004. "Robust Control Rules to Shield Against Indeterminacy," Computing in Economics and Finance 2004 339, Society for Computational Economics. [Downloadable!]
  4. Leon, Costas, 2006. "The Taylor rule: can it be supported by the data?," MPRA Paper 1650, University Library of Munich, Germany. [Downloadable!]
  5. C. Moons & A. Van Poeck, 2008. "Does one size fit all? A Taylor-rule based analysis of monetary policy for current and future EMU members," Applied Economics, Taylor and Francis Journals, vol. 40(2), pages 193-199. [Downloadable!] (restricted)
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