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On the Robustness of the "Taylor Rule" in the EMU

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  • Maria ELEFTHERIOU

Abstract

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.

Suggested Citation

  • Maria ELEFTHERIOU, 2003. "On the Robustness of the "Taylor Rule" in the EMU," Economics Working Papers ECO2003/17, European University Institute.
  • Handle: RePEc:eui:euiwps:eco2003/17
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    Cited by:

    1. Sousa, Pedro, 2009. "Do ECB Council Decisions represent always a Real Euro Consensus?," Working Papers 9/2009, Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE).
    2. repec:afe:journl:v:19:y:2017:i:2:p:1-18 is not listed on IDEAS
    3. Nigel F.B. Allington & Paul A. Kattuman & Florian A. Waldmann, 2005. "One Market, One Money, One Price?," International Journal of Central Banking, International Journal of Central Banking, vol. 1(3), December.
    4. Leon, Costas, 2006. "The Taylor rule: can it be supported by the data?," MPRA Paper 1650, University Library of Munich, Germany.
    5. Hidi, János, 2006. "A magyar monetáris politikai reakciófüggvény becslése
      [Estimating the reaction function for Hungarian monetary policy]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1178-1199.
    6. Gerdesmeier, Dieter & Roffia, Barbara & Eleftheriou, Maria, 2006. "Monetary policy rules in the pre-EMU era: Is there a common rule?," Working Paper Series 659, European Central Bank.
    7. Allington, Nigel FB & Kattuman, Paul A & Waldmann, Florian A, 2005. "One Market, One Money, One Price?," MPRA Paper 835, University Library of Munich, Germany.
    8. C.J.M. Kool, 2005. "What Drives ECB Monetary Policy?," Working Papers 05-03, Utrecht School of Economics.

    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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