IDEAS home Printed from https://ideas.repec.org/a/eei/journl/v53y2010i2p1-31.html
   My bibliography  Save this article

The European Central Bank, the Federal Reserve and the Bank of England: Is the Taylor Rule a useful benchmark for the last decade?

Author

Listed:
  • Antonio Forte

Abstract

In this article, using a Taylor type rule, I focus on the Euro era and compare the ECB with other two central banks, the Fed and the Bank of England. A very interesting result comes out from the analysis: it seems that these central banks do not observe the inflation course before deciding on the variation of the interest rates. This result can be linked to two ideas: firstly, the use of stationary time series drops out the significance of the inflation gap; secondly, a really forward looking central bank focuses on other macroeconomic leading indicators instead of examining the inflation gap.

Suggested Citation

  • Antonio Forte, 2010. "The European Central Bank, the Federal Reserve and the Bank of England: Is the Taylor Rule a useful benchmark for the last decade?," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 53(2), pages 1-31.
  • Handle: RePEc:eei:journl:v:53:y:2010:i:2:p:1-31
    as

    Download full text from publisher

    File URL: https://ideas.repec.org/a/eei/journl/v53y2010i2p1-31.html
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Zeno Rotondi & Giacomo Vaciago, 2007. "Lessons from the ECB experience: Frankfurt still matters!," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0070, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    2. Kenneth S. Rogoff, 2003. "Globalization and global disinflation," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-112.
    3. David C. Parsley, 2003. "Exchange rate pass-through in a small open economy: Panel evidence from Hong Kong," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(2), pages 99-107.
    4. Robert Tchaidze & Alina Carare, 2004. "The Use and Abuse of Taylor Rules: How precisely can we estimate them?," Econometric Society 2004 Latin American Meetings 132, Econometric Society.
    5. Domenico Giannone & Michele Lenza & Lucrezia Reichlin, 2008. "Explaining The Great Moderation: It Is Not The Shocks," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 621-633, 04-05.
    6. Fourçans, André & Vranceanu, Radu, 2002. "ECB Monetary Policy Rule: Some Theory and Empirical Evidence," ESSEC Working Papers DR 02008, ESSEC Research Center, ESSEC Business School.
    7. Richard H. Clarida & Mark Gertler, 1997. "How the Bundesbank Conducts Monetary Policy," NBER Chapters,in: Reducing Inflation: Motivation and Strategy, pages 363-412 National Bureau of Economic Research, Inc.
    8. International Monetary Fund, 2005. "Inflation Targeting and Output Growth; Empirical Evidence for the European Union," IMF Working Papers 05/89, International Monetary Fund.
    9. Zeno Rotondi & Giacomo Vaciago, 2007. "Lessons from the ECB Experience: Frankfurt Still Matters!," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 36(2), pages 147-170, July.
    10. David Parsley & Helen Popper, 2009. "Evaluating Exchange Rate Management An Application to Korea," Working Papers 282009, Hong Kong Institute for Monetary Research.
    11. Jens Richard Clausen & Carsten-Patrick Meier, 2005. "Did the Bundesbank Follow a Taylor Rule? An Analysis Based on Real-Time Data," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), pages 213-246.
    12. Stephen G. Cecchetti & Guy Debelle, 2006. "Has the inflation process changed?," Economic Policy, CEPR;CES;MSH, vol. 21(46), pages 311-352, April.
    13. Laurence Ball & Robert R. Tchaidze, 2002. "The Fed and the New Economy," American Economic Review, American Economic Association, vol. 92(2), pages 108-114, May.
    14. Charles Engel, 2011. "Currency Misalignments and Optimal Monetary Policy: A Reexamination," American Economic Review, American Economic Association, vol. 101(6), pages 2796-2822, October.
    15. Claudio E. V. Borio & Andrew Filardo, 2007. "Globalisation and inflation: New cross-country evidence on the global determinants of domestic inflation," BIS Working Papers 227, Bank for International Settlements.
    16. Kai Carstensen, 2006. "Estimating the ECB Policy Reaction Function," German Economic Review, Verein für Socialpolitik, vol. 7, pages 1-34, February.
    17. Antonio Forte, 2009. "The pass-through effect: a twofold analysis," EERI Research Paper Series EERI_RP_2009_08, Economics and Econometrics Research Institute (EERI), Brussels.
    18. Janko Gorter & Jan Jacobs & Jakob de Haan, 2007. "Taylor Rules for the ECB using Consensus Data," DNB Working Papers 160, Netherlands Central Bank, Research Department.
    19. Florens, C. & Jondeau, E. & Le Bihan, H., 2001. "Assessing GMM Estimates of the Federal Reserve Reaction Function," Working papers 83, Banque de France.
    20. Gabriele Galati & William R. Melick, 2006. "The evolving inflation process: an overview," BIS Working Papers 196, Bank for International Settlements.
    21. Assenmacher-Wesche, Katrin & Gerlach, Stefan, 2008. "Interpreting euro area inflation at high and low frequencies," European Economic Review, Elsevier, vol. 52(6), pages 964-986, August.
    22. Ullrich, Katrin, 2003. "A Comparison Between the Fed and the ECB: Taylor Rules," ZEW Discussion Papers 03-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    23. Stephan Sauer & Jan-Egbert Sturm, 2003. "Using Taylor Rules to Understand ECB Monetary Policy," CESifo Working Paper Series 1110, CESifo Group Munich.
    24. Forte, Antonio, 2009. "The stability of the inflation rate in the Euro area: the role of Globalization and labour market," MPRA Paper 16587, University Library of Munich, Germany.
    25. Glenn Rudebusch & Lars E.O. Svensson, 1999. "Policy Rules for Inflation Targeting," NBER Chapters,in: Monetary Policy Rules, pages 203-262 National Bureau of Economic Research, Inc.
    26. Ignazio Angeloni & Luc Aucremanne & Matteo Ciccarelli, 2006. "Price setting and inflation persistence: did EMU matter?," Economic Policy, CEPR;CES;MSH, vol. 21(46), pages 353-387, April.
    27. 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.
    28. Gert Schnabel & Stefan Gerlach, 1999. "The Taylor rule and interest rates in the EMU area: a note," BIS Working Papers 73, Bank for International Settlements.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. James Anderson, 2015. "Migration of Labor in Europe: Theory and Evidence," Journal of Economics and Econometrics, Economics and Econometrics Society, pages 40-65.
    2. Emna Trabelsi, 2012. "The relationship between central bank transparency and the quality of inflation forecasts: is it U-shaped?," EERI Research Paper Series EERI_RP_2012_02, Economics and Econometrics Research Institute (EERI), Brussels.
    3. Kancs, d'Artis & Kielyte, Julda, 2010. "European Integration and Labour Migration," European Integration online Papers (EIoP), European Community Studies Association Austria (ECSA-A), vol. 14, November.
    4. James Anderson, 2015. "Migration of Labor in Europe: Theory and Evidence," Journal of Economics and Econometrics, Economics and Econometrics Society, pages 40-65.

    More about this item

    Keywords

    Taylor rule; European Central Bank; Federal Reserve; Bank of England.;

    JEL classification:

    • 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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eei:journl:v:53:y:2010:i:2:p:1-31. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julia van Hove). General contact details of provider: http://edirc.repec.org/data/eeriibe.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.