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Estimates of US monetary policy rules with allowance for changes in the output gap


  • D. A. Peel
  • I. Paya
  • I. Venetis


This article estimates a reduced form Taylor rule for the Pre-Volcker and Volcker-Greenspan periods. A novelty is that it follows a suggestion of Walsh and includes changes in the output gap as an explanatory variable. Either this variable or an interaction term between inflation and changes in the output gap are highly significant in both periods. The response to inflation and the interaction term are higher in the Volcker-Greenspan period of office.

Suggested Citation

  • D. A. Peel & I. Paya & I. Venetis, 2004. "Estimates of US monetary policy rules with allowance for changes in the output gap," Applied Economics Letters, Taylor & Francis Journals, vol. 11(10), pages 601-605.
  • Handle: RePEc:taf:apeclt:v:11:y:2004:i:10:p:601-605 DOI: 10.1080/1350485042000227287

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    References listed on IDEAS

    1. Dolado Juan & Pedrero Ramón María-Dolores & Ruge-Murcia Francisco J., 2004. "Nonlinear Monetary Policy Rules: Some New Evidence for the U.S," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 8(3), pages 1-34, September.
    2. Marc P. Giannoni & Michael Woodford, 2003. "Optimal Interest-Rate Rules: II. Applications," NBER Working Papers 9420, National Bureau of Economic Research, Inc.
    3. Bec Frédérique & Ben Salem Mélika & Collard Fabrice, 2002. "Asymmetries in Monetary Policy Reaction Function: Evidence for U.S. French and German Central Banks," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 6(2), pages 1-22, July.
    4. Denise R. Osborn & Dong Heon Kim & Marianne Sensier, 2005. "Nonlinearity in the Fed's monetary policy rule," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(5), pages 621-639.
    5. A. Robert Nobay & David A. Peel, 1998. "Optimal Monetary Policy in a Model of Asymmetric Central Bank Preferences," FMG Discussion Papers dp306, Financial Markets Group.
    6. Orphanides, Athanasios & Wilcox, David W, 2002. "The Opportunistic Approach to Disinflation," International Finance, Wiley Blackwell, vol. 5(1), pages 47-71, Spring.
    7. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, July.
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    Cited by:

    1. Paradiso, Antonio & Rao, B. Bhaskara, 2011. "The effects of Minsky moment and stock prices on the US Taylor Rule," MPRA Paper 27840, University Library of Munich, Germany.
    2. Juan Paez-Farrell, 2009. "Monetary policy rules in theory and in practice: evidence from the UK and the US," Applied Economics, Taylor & Francis Journals, vol. 41(16), pages 2037-2046.
    3. Yu Hsing, 2009. "Is the monetary policy rule responsive to exchange rate changes? The case of Indonesia, Malaysia, the Philippines, and Thailand," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 56(2), pages 123-132, June.
    4. Hatcher, Michael C., 2008. "Speed Limit Policies versus Inflation Targeting: A Free Lunch?," Cardiff Economics Working Papers E2008/20, Cardiff University, Cardiff Business School, Economics Section.

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