IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

The relative performance of alternative Taylor rule specifications

  • Adriana Z. Fernandez
  • Evan F. Koenig
  • Alex Nikolsko-Rzhevskyy

We look at how well several alternative Taylor rule specifications describe Federal Reserve policy decisions in real time, using the newly developed Giacomini and Rossi (2007) test for non-nested model selection in the presence of (possible) parameter instability. Further, we isolate those Taylor rule features that are most important for achieving relatively strong real-time performance. A second-order partial adjustment version of the Koenig (2004a) model performs consistently better than alternative specifications. Key features of this rule are the partial adjustment of the federal funds rate toward an equilibrium rate that depends on the unemployment rate and forward-looking inflation measures.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.dallasfed.org/assets/documents/research/staff/staff0804.pdf
Download Restriction: no

Article provided by Federal Reserve Bank of Dallas in its journal Staff Papers.

Volume (Year): (2008)
Issue (Month): Jun ()
Pages:

as
in new window

Handle: RePEc:fip:feddst:y:2008:i:jun:n:6
Contact details of provider: Web page: http://www.dallasfed.org/
Email:


More information through EDIRC

Order Information: Email:


References listed on IDEAS
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.:

as in new window
  1. Svensson, Lars E.O., 1997. "Inflation Targeting: Some Extensions," Seminar Papers 625, Stockholm University, Institute for International Economic Studies.
  2. 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), vol. 141(II), pages 213-246, June.
  3. Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers 98-01, C.V. Starr Center for Applied Economics, New York University.
  4. Athanasios Orphanides & Simon van Norden, 2004. "The reliability of inflation forecasts based on output gap estimates in real time," Finance and Economics Discussion Series 2004-68, Board of Governors of the Federal Reserve System (U.S.).
  5. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," CEPR Discussion Papers 1750, C.E.P.R. Discussion Papers.
  6. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, vol. 91(4), pages 964-985, September.
  7. Cayen, Jean-Philippe & van Norden, Simon, 2005. "The reliability of Canadian output-gap estimates," The North American Journal of Economics and Finance, Elsevier, vol. 16(3), pages 373-393, December.
  8. Berg, Claes & Jonung, Lars, 1998. "Pioneering Price Level Targeting: The Swedish Experience 1931-1937," Seminar Papers 642, Stockholm University, Institute for International Economic Studies.
  9. Simon van Norden, 1995. "Why Is It So Hard to Measure the Current Output Gap?," Macroeconomics 9506001, EconWPA.
  10. Mark W. Watson, 2007. "How accurate are real-time estimates of output trends and gaps?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 143-161.
  11. Nikolsko-Rzhevskyy, Alex, 2008. "Monetary Policy Evaluation in Real Time: Forward-Looking Taylor Rules Without Forward-Looking Data," MPRA Paper 11352, University Library of Munich, Germany.
  12. Evan F. Koenig, 2004. "Monetary policy prospects," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, pages 1-16.
  13. Robert E. Hall & N. Gregory Mankiw, 1994. "Nominal Income Targeting," NBER Chapters, in: Monetary Policy, pages 71-94 National Bureau of Economic Research, Inc.
  14. Giacomini, Raffaella & Rossi, Barbara, 2008. "Forecast Comparisons in Unstable Environments," Working Papers 08-04, Duke University, Department of Economics.
  15. Taylor Mark P. & Davradakis Emmanuel, 2006. "Interest Rate Setting and Inflation Targeting: Evidence of a Nonlinear Taylor Rule for the United Kingdom," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 10(4), pages 1-20, December.
  16. Kevin J. Lansing, 2002. "Real-time estimation of trend output and the illusion of interest rate smoothing," Economic Review, Federal Reserve Bank of San Francisco, pages 17-34.
  17. Masao Ogaki & Hyeongwoo Kim, 2009. "Purchasing Power Parity and the Taylor Rule," Working Papers 09-03, Ohio State University, Department of Economics.
  18. Molodtsova, Tanya & Nikolsko-Rzhevskyy, Alex & Papell, David H., 2008. "Taylor rules with real-time data: A tale of two countries and one exchange rate," Journal of Monetary Economics, Elsevier, vol. 55(Supplemen), pages S63-S79, October.
  19. Gerberding, Christina & Seitz, Franz & Worms, Andreas, 2005. "How the Bundesbank really conducted monetary policy," The North American Journal of Economics and Finance, Elsevier, vol. 16(3), pages 277-292, December.
  20. Glenn D. Rudebusch, 2006. "Monetary Policy Inertia: Fact or Fiction?," International Journal of Central Banking, International Journal of Central Banking, vol. 2(4), December.
  21. Bean, Charles R, 1983. "Targeting Nominal Income: An Appraisal," Economic Journal, Royal Economic Society, vol. 93(372), pages 806-19, December.
  22. Jordi Galí & Mark Gertler, 1998. "Inflation dynamics: A structural econometric analysis," Economics Working Papers 341, Department of Economics and Business, Universitat Pompeu Fabra.
  23. 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.
  24. Douglas Staiger & James H. Stock & Mark W. Watson, 1997. "The NAIRU, Unemployment and Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 33-49, Winter.
  25. Michael Woodford, 2001. "The Taylor Rule and Optimal Monetary Policy," American Economic Review, American Economic Association, vol. 91(2), pages 232-237, May.
  26. Masao Ogaki & Bruce E. Hansen & Ippei Fujiwara & Hyeongwoo Kim, 2013. "Purchasing power parity and the Taylor rule," AJRC Working Papers 05, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:fip:feddst:y:2008:i:jun:n:6. 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: (Amy Chapman)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.