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The Taylor rule and house price uncertainty


  • Bruce Morley
  • Qijia Wei


The aim of this article is to determine whether house price uncertainty has been an important determinant of the Taylor rule-based interest rate during the years leading up to the financial crisis. A Generalized Autoregressive Conditional Heteroskedasticity (GARCH)-based specification has been used to produce a time-varying measure of volatility, and the results indicate that it has had a significant negative effect on the interest rate, but that its addition only produces a slightly better fit to the actual interest rate.

Suggested Citation

  • Bruce Morley & Qijia Wei, 2012. "The Taylor rule and house price uncertainty," Applied Economics Letters, Taylor & Francis Journals, vol. 19(15), pages 1449-1453, October.
  • Handle: RePEc:taf:apeclt:v:19:y:2012:i:15:p:1449-1453
    DOI: 10.1080/13504851.2011.633882

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    References listed on IDEAS

    1. Frank Smets, 1997. "Financial-asset Prices and Monetary Policy: Theory and Evidence," RBA Annual Conference Volume,in: Philip Lowe (ed.), Monetary Policy and Inflation Targeting Reserve Bank of Australia.
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