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Taylor rules, omitted variables, and interest rate smoothing in the US

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  • Efrem Castelnuovo

    (University of Padua)

Abstract

We test for the presence of interest rate smoothing in forward looking Taylor rules in first differences. We also consider financial and asymmetric preferences indicators. We find that interest rate smoothing is not induced by an omitted variable bias.

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File URL: http://128.118.178.162/eps/mac/papers/0403/0403009.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0403009.

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Length: 5 pages
Date of creation: 17 Mar 2004
Date of revision:
Handle: RePEc:wpa:wuwpma:0403009

Note: Type of Document - pdf; pages: 5
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Web page: http://128.118.178.162

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Keywords: Taylor rules; Interest rate smoothing; Serial correlation; Observational equivalence; Omitted variables;

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References

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  1. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "Monetary policy rules and macroeconomic stability: Evidence and some theory," Economics Working Papers 350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
  2. Glenn D. Rudebusch, 2001. "Term structure evidence on interest rate smoothing and monetary policy inertia," Working Paper Series 2001-02, Federal Reserve Bank of San Francisco.
  3. William B. English & William R. Nelson & Brian P. Sack, 2002. "Interpreting the significance of lagged interest rate in estimated monetary policy rules," Finance and Economics Discussion Series 2002-24, Board of Governors of the Federal Reserve System (U.S.).
  4. Efrem Castelnuovo, 2004. "Describing the Fed's conduct with simple Taylor rules: is interest rate smoothing important?," Money Macro and Finance (MMF) Research Group Conference 2003 12, Money Macro and Finance Research Group.
  5. 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.
  6. Alex Cukierman & Anton Muscatelli, 2001. "Do Central Banks have Precautionary Demands for Expansions and for Price Stability?," Working Papers 2002_4, Business School - Economics, University of Glasgow, revised Mar 2002.
  7. Guha, Debashis & Hiris, Lorene, 2002. "The aggregate credit spread and the business cycle," International Review of Financial Analysis, Elsevier, vol. 11(2), pages 219-227.
  8. Sack, Brian & Wieland, Volker, 2000. "Interest-rate smoothing and optimal monetary policy: a review of recent empirical evidence," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 205-228.
  9. Gabriel Srour, 2001. "Why Do Central Banks Smooth Interest Rates?," Working Papers 01-17, Bank of Canada.
  10. Alex Cukierman & V. Anton Muscatelli, 2002. "Do Central Banks have Precautionary Demands for Expansions and for Price Stability? - Theory and Evidence," CESifo Working Paper Series 764, CESifo Group Munich.
  11. Surico, Paolo, 2003. "US Monetary Policy Rules: the Case for Asymmetric Preferences," Royal Economic Society Annual Conference 2003 199, Royal Economic Society.
  12. Gerlach-Kristen Petra, 2004. "Interest-Rate Smoothing: Monetary Policy Inertia or Unobserved Variables?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-19, March.
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