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Nominal income versus Taylor-type rules in practice

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  • Jonathan Benchimol

    () (BoI - Bank of Israel)

  • André Fourçans

    () (ESSEC - ESSEC Business School - Essec Business School - Economics Department - Essec Business School)

Abstract

Since the beginning of the financial crisis, a lively debate has emerged regarding which monetary policy rule the Fed (and other central banks) should follow, if any. To clarify this debate, several questions must be answered. Which monetary policy rule best the historical data? Which monetary policy rule best minimizes economic uncertainty and the Fed's loss function? Which rule is best in terms of household welfare? Among the different rules, are NGDP growth or level targeting rules a good option, and when? Do they perform better than Taylor-type rules? To answer these questions, we use Bayesian estimations to test the Smets and Wouters (2007) model under nine different monetary policy rules with US data from 1955 to 2015 and over three different sub-periods. We find that when considering only the central bank's loss function, the estimates generally indicate the superiority of NGDP level targeting rules, whatever the period. However, if other criteria are considered, the central bank's objectives are not consistently met by a single rule for all periods.

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  • Jonathan Benchimol & André Fourçans, 2016. "Nominal income versus Taylor-type rules in practice," Working Papers hal-01357870, HAL.
  • Handle: RePEc:hal:wpaper:hal-01357870
    Note: View the original document on HAL open archive server: https://hal-essec.archives-ouvertes.fr/hal-01357870
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    Cited by:

    1. Ibrahima Amadou Diallo, 2019. "A Bayesian DSGE Model Comparison of the Taylor Rule and Nominal GDP Targeting," Working Papers hal-02281971, HAL.

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    More about this item

    Keywords

    Monetary policy; NGDP targeting; Taylor rule; DSGE model;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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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