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The Robustness and Efficiency of Monetary Policy Rules as Guidelines for Interest Rate Setting by the European Central Bank

  • Taylor, John B.

    ()

    (Stanford University, Department of Economics)

This paper examines the implications of recent research on monetary policy rules for practical monetary policy making, with special emphasis on strategies for setting interest rates by the new European Central Bank (ECB). The paper draws on recent research and new simulations of a large open economy model to assess the efficiency of a simple benchmark rule in comparison with other proposed rules. The paper stresses new results on the robustness of monetary policy rules in which each rule that is optimal or good according to one model or researcher is tested for robustness by other researchers using different models. Because of the large increase in the number of economists focussing on econometric evaluation of monetary policy rules for the interest rate instrument and because of the parallel increase in the variety of models being developed for this purpose, much more evidence is becoming available on the robustness of simle monetary policy rules for the interest rate than ever before.

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Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 649.

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Length: 39 pages
Date of creation: 01 Aug 1998
Date of revision:
Handle: RePEc:hhs:iiessp:0649
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Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden

Phone: +46-8-162000
Fax: +46-8-161443
Web page: http://www.iies.su.se/

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  1. Wright, Stephen, 1998. "Monetary Policy, Nominal Interest Rates, and Long-horizon Inflation Uncertainty," Cambridge Working Papers in Economics 9820, Faculty of Economics, University of Cambridge.
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  4. Hassler, John & Lindbeck, Assar, 1997. "Optimal actuarial fairness in pension systems: A note," Economics Letters, Elsevier, vol. 55(2), pages 251-255, August.
  5. Andrew T.. Levin & Volker Wieland & John Williams, 1999. "Robustness of Simple Monetary Policy Rules under Model Uncertainty," NBER Chapters, in: Monetary Policy Rules, pages 263-318 National Bureau of Economic Research, Inc.
  6. Frankel, J-A & Rose, A-K, 1996. "Economic Structure and the Decision to Adopt a Common Currency," Papers 611, Stockholm - International Economic Studies.
  7. Svensson, Lars E.O., 1997. "Inflation Targeting: Some Extensions," Seminar Papers 625, Stockholm University, Institute for International Economic Studies.
  8. Lindbeck, Assar & Nyberg, Sten & Weibull, Jörgen W., 1997. "Social Norms, the Welfare State, and Voting," Seminar Papers 608, Stockholm University, Institute for International Economic Studies.
  9. R. Barrell & R. Anderton & N. Vaughan & J.W. in't Veld, 1994. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 147(1), pages 30-49, February.
  10. R. Barrell & R. Anderton & GM Caporale & JW in't Veld, 1993. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 143(1), pages 27-53, February.
  11. Hassler, J & Rodriguez Mora, J-V, 1997. "Employment Turnover and Unemployment Insurance," Papers 623, Stockholm - International Economic Studies.
  12. Svensson, Lars E.O., 1997. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," Seminar Papers 615, Stockholm University, Institute for International Economic Studies.
  13. Marvin Goodfriend & Robert King, 1997. "The New Neoclassical Synthesis and the Role of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 231-296 National Bureau of Economic Research, Inc.
  14. Ball, Laurence, 1999. "Efficient Rules for Monetary Policy," International Finance, Wiley Blackwell, vol. 2(1), pages 63-83, April.
  15. Burda,M.C., 1995. "Migration and the Option Value of Waiting," Papers 597, Stockholm - International Economic Studies.
  16. Jonas Agell & Mats Persson, 1998. "Tax Arbitrage and Labor Supply," NBER Working Papers 6708, National Bureau of Economic Research, Inc.
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  18. Anderson, James E., 1997. "Revenue Neutral Trade Reform with Many Households, Quotas and Tariffs," Seminar Papers 626, Stockholm University, Institute for International Economic Studies.
  19. Svensson, L-E-O, 1996. "Price Level Targeting vs Inflation Targeting : A free Lunch?," Papers 614, Stockholm - International Economic Studies.
  20. Lars E.O. Svensson, 1995. "Optimal Inflation Targets, `Conservative' Central Banks, and Linear Inflation Contracts," NBER Working Papers 5251, National Bureau of Economic Research, Inc.
  21. 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.
  22. John B. Taylor, 1996. "How should monetary policy respond to shocks while maintaining long-run price stability? Conceptual issues," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 181-195.
  23. Persson, T. & Roland, G. & Tabellini, G., 1997. "Comparative Politics and Public Finance," Papers 633, Stockholm - International Economic Studies.
  24. Bennett T. McCallum & Edward Nelson, 1998. "Performance of Operational Policy Rules in an Estimated Semi-Classical Structural Model," NBER Working Papers 6599, National Bureau of Economic Research, Inc.
  25. Nicoletta Batini & Andrew Haldane, 1999. "Forward-Looking Rules for Monetary Policy," NBER Chapters, in: Monetary Policy Rules, pages 157-202 National Bureau of Economic Research, Inc.
  26. Lars E.O. Svensson, 1998. "Inflation Targeting as a Monetary Policy Rule," NBER Working Papers 6790, National Bureau of Economic Research, Inc.
  27. Robert King & Alexander L. Wolman, 1999. "What Should the Monetary Authority Do When Prices Are Sticky?," NBER Chapters, in: Monetary Policy Rules, pages 349-404 National Bureau of Economic Research, Inc.
  28. Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers.
  29. Laurence Ball, 1998. "Policy Rules for Open Economies," RBA Research Discussion Papers rdp9806, Reserve Bank of Australia.
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  31. Rudi Dornbusch & Carlo Favero & Francesco Giavazzi, 1998. "Immediate challenges for the European Central Bank," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 15-64, 04.
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  34. repec:fip:fedgsq:y:1996:i:mar13 is not listed on IDEAS
  35. Jeffrey C. Fuhrer & Brian F. Madigan, 1997. "Monetary Policy When Interest Rates Are Bounded At Zero," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 573-585, November.
  36. Hassler, John & Lindbeck, Assar, 1997. "Intergenerational Risk Sharing, Stability and Optimality of Alternative Pension Systems," CEPR Discussion Papers 1774, C.E.P.R. Discussion Papers.
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  38. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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  40. Burda, Michael C, 1995. "Unions and Wage Insurance," CEPR Discussion Papers 1232, C.E.P.R. Discussion Papers.
  41. Bennett T. McCallum, 1997. "Issues in the Design of Monetary Policy Rules," NBER Working Papers 6016, National Bureau of Economic Research, Inc.
  42. John B. Taylor, 1995. "Monetary policy implications of greater fiscal discipline," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 151-170.
  43. Wieland, Volker, 1996. "Monetary policy targets and the stabilization objective: a source of tension in the EMS," Journal of International Money and Finance, Elsevier, vol. 15(1), pages 95-116, February.
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  45. Rudiger Dornbusch & Carlo A. Favero & Francesco Giavazzi, 1998. "The Immediate Challenges for the European Central Bank," NBER Working Papers 6369, National Bureau of Economic Research, Inc.
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