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Some new results on interest rate rules in EMU and in the US

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  • Rafael Domenech
  • Mayte Ledo
  • David Taguas

Abstract

This paper offers two new results on interest rate rules. First, we show that the empirical evidence from 1970 onwards for the US is compatible with a Taylor rule when we consider the possibility of changes in the inflation target and in the real interest rate. Second, recursive estimates of a forward-looking version of the Taylor rule for EMU confirm an increasing weight for inflation in the area, possibly as a consequence of the EMS, and, furthermore, a convergence in the nineties to the German value observed for the whole period. This process has coincided with an important reduction in the deviation of inflation across EMU countries.

Suggested Citation

  • Rafael Domenech & Mayte Ledo & David Taguas, 2000. "Some new results on interest rate rules in EMU and in the US," Working Papers 0002, BBVA Bank, Economic Research Department.
    • Handle: RePEc:bbv:wpaper:0002
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    References listed on IDEAS

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    1. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
    2. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
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    13. John P. Judd & Glenn D. Rudebusch, 1998. "Taylor's rule and the Fed, 1970-1997," Economic Review, Federal Reserve Bank of San Francisco, pages 3-16.
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