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Does McCallum’s rule outperform Taylor’s rule during the financial crisis?

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  • Jung, Alexander

Abstract

This paper makes an empirical comparison of two simple monetary policy rules, the McCallum rule and the Taylor rule and uses them to assess the monetary policy stance of the ECB during the financial crisis. After the Taylor rule, the McCallum rule ranks among the most widely analysed nominal feedback rules used for policy simulations. The retrospective evidence for the euro area suggests that these simple rules might have provided useful information about the policy stance of the ECB. While we find that for most of that period both rules were fairly close to actual policy, we find no support for McCallum (2000)’s claim on the superiority of his rule over the Taylor rule especially in an environment of very low interest rates.

Suggested Citation

  • Jung, Alexander, 2018. "Does McCallum’s rule outperform Taylor’s rule during the financial crisis?," The Quarterly Review of Economics and Finance, Elsevier, vol. 69(C), pages 9-21.
  • Handle: RePEc:eee:quaeco:v:69:y:2018:i:c:p:9-21
    DOI: 10.1016/j.qref.2017.11.005
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    Cited by:

    1. Yutaka Kurihara & Akio Fukushima, 2020. "Taylor and McCallum Rule during the Unprecedented Monetary Easing Era: The Recent Japanese Case," Applied Economics and Finance, Redfame publishing, vol. 7(3), pages 70-77, May.

    More about this item

    Keywords

    McCallum rule; Taylor rule; Monetary base; Shadow rate; Euro area;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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