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The Meta Taylor Rule

  • Kevin Lee, James Morley and Kalvinder Sheields

This paper provides a characterisation of U.S. monetary policy within a generalized Taylor rule framework that accommodates uncertainties about the duration of policy regimes and the specification of the rule, in addition to the standard parameter and stochastic uncertainties inherent in traditional Taylor rule analysis. Our approach involves estimation and inference based on Taylor rules obtained through standard linear regression methods, but combined using Bayesian model averaging techniques. Employing data that were available in real time, the estimated version of the ‘meta’ Taylor rule provides a flexible but compelling characterisation of monetary policy in the United States over the last forty years.

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Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1131.

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Length: 31 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:mlb:wpaper:1131
Contact details of provider: Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia
Phone: +61 3 8344 5355
Fax: +61 3 8344 6899
Web page: http://www.economics.unimelb.edu.au
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  1. Michael Woodford, 2001. "The Taylor Rule and Optimal Monetary Policy," American Economic Review, American Economic Association, vol. 91(2), pages 232-237, May.
  2. Boivin, Jean, 2006. "Has U.S. Monetary Policy Changed? Evidence from Drifting Coefficients and Real-Time Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1149-1173, August.
  3. Athanasios Orphanides, 1998. "Monetary policy rules based on real-time data," Finance and Economics Discussion Series 1998-03, Board of Governors of the Federal Reserve System (U.S.).
  4. Graham Elliott & Allan Timmermann, 2008. "Economic Forecasting," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 3-56, March.
  5. Athanasios Orphanides, 2003. "Historical monetary policy analysis and the Taylor rule," Finance and Economics Discussion Series 2003-36, Board of Governors of the Federal Reserve System (U.S.).
  6. Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers 98-01, C.V. Starr Center for Applied Economics, New York University.
  7. Christina D. Romer & David H. Romer, 2004. "Choosing the Federal Reserve Chair: Lessons from History," Journal of Economic Perspectives, American Economic Association, vol. 18(1), pages 129-162, Winter.
  8. Lindsey, David E. & Orphanides, Athanasios & Rasche, Robert H., 2013. "The Reform of October 1979: How It Happened and Why," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 487-542.
  9. Kevin Lee & Emi Mise & Kalvinder Shields & Tony Garratt, 2005. "Real time Representations of the Output Gap," Money Macro and Finance (MMF) Research Group Conference 2005 26, Money Macro and Finance Research Group.
  10. Lee, Kevin & Olekalns, Nils & Shields, Kalvinder K, 2009. "Nowcasting, Business Cycle Dating and the Interpretation of New Information when Real-Time Data are Available," CEPR Discussion Papers 7426, C.E.P.R. Discussion Papers.
  11. Garratt, Anthony & Lee, Kevin & Mise, Emi & Shields, Kalvinder, 2009. "Real time representation of the UK output gap in the presence of model uncertainty," International Journal of Forecasting, Elsevier, vol. 25(1), pages 81-102.
  12. Sharon Kozicki, 1999. "How useful are Taylor rules for monetary policy?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-33.
  13. Lee, Kevin C & Pesaran, M Hashem & Pierse, Richard G, 1990. "Testing for Aggregation Bias in Linear Models," Economic Journal, Royal Economic Society, vol. 100(400), pages 137-50, Supplemen.
  14. Athanasios Orphanides & Richard D. Porter & David Reifschneider & Robert Tetlow & Frederico Finan, 1999. "Errors in the measurement of the output gap and the design of monetary policy," Finance and Economics Discussion Series 1999-45, Board of Governors of the Federal Reserve System (U.S.).
  15. Cinzia Alcidi & Alessandro Flamini & Andrea Fracasso, 2011. "Policy Regime Changes, Judgment and Taylor rules in the Greenspan Era," Economica, London School of Economics and Political Science, vol. 78(309), pages 89-107, January.
  16. M. Hashem Pesaran, 2000. "Forecast Uncertainties in Macroeconometric Modelling: An Application to the UK Economy," CESifo Working Paper Series 345, CESifo Group Munich.
  17. Schwartz, Anna J., 2003. "Comment on: Historical monetary policy analysis and the Taylor rule," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 1023-1027, July.
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