On the Robustness of the "Taylor Rule" in the EMU
Following a policy rule mechanically when operating monetary policy is neither realistic nor practical. Nevertheless, monetary policy rules have received a great deal of attention in recent macroeconomic research. The paper focuses on a famous interest rate rule, namely the Taylor Rule, to show that the rule parameters are robust to most of the output gap measures and the specifications considered, i.e. the inflation coefficient is above unity and the output gap coefficient is positive. The estimated rule is shown to track the actual policy performance during the EMU period remarkably well. In addition, the estimated rule is used as an indicator of macroeconomic convergence in the union and it is demonstrated that the optimal EMU rate has not been in accordance with domestic conditions in certain countries.
|Date of creation:||2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.eui.eu/ECO/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:eui:euiwps:eco2003/17. 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: (Rhoda Lane)
If references are entirely missing, you can add them using this form.