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

How useful are Taylor rules for monetary policy?

  • Sharon Kozicki

Over the past several years, Taylor rules have attracted increased attention of analysts, policymakers, and the financial press. Taylor rules recommend a setting for the level of the federal funds rate based on the state of the economy. Taylor rules have become more appealing recently with the apparent breakdown in the relationship between money growth and inflation. But, the usefulness of rule recommendations to policymakers has not been well established.> To be useful to policymakers, rule recommendations should be robust to minor variations in the rule specification. For example, if recommendations differ considerably depending on whether price inflation is measured using the core consumer price index or the chain price index for GDP, then the rule may not be very useful. Rule recommendations should also be reliable. A reliable rule might be expected to replicate federal funds rate settings over a period when policymakers thought policy actions were successful. But, even a rule that can replicate favorable policy actions may not be regarded as reliable if past policy decisions were influenced by economic events beyond the scope of the rule.> Kozicki examines whether recommendations from Taylor rules are useful to policymakers as they decide how to adjust the federal funds rate. She suggests that the usefulness of Taylor rule recommendations to policymakers faced with real-time policy decisions is limited. But Taylor rules may be useful to policymakers in other ways. For example, Taylor rules may provide a good starting point for discussions of issues that concern policymakers. Such rules also play an important role in most forecasting models.

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.kansascityfed.org/publicat/econrev/PDF/2q99kozi.pdf
Download Restriction: no

Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.

Volume (Year): (1999)
Issue (Month): Q II ()
Pages: 5-33

as
in new window

Handle: RePEc:fip:fedker:y:1999:i:qii:p:5-33:n:v.84no.2
Contact details of provider: Postal: One Memorial Drive, Kansas City, MO 64198
Phone: (816) 881-2254
Web page: http://www.kansascityfed.org

More information through EDIRC

Order Information: Email:


No references listed on IDEAS
You can help add them by filling out this form.

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:fedker:y:1999:i:qii:p:5-33:n:v.84no.2. 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: (LDayrit)

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.