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Using Taylor Rules as Efficiency Benchmarks

  • Diana N. Weymark

    ()

    (Department of Economics, Vanderbilt University)

In this article, benchmark Taylor rules are obtained as the solution to a dynamic programming problem in which interest rates are chosen to minimize the discounted sum of observed inflation and output variations. The properties of these benchmark rules are used to derive efficiency conditions that are amenable to estimation. Estimated efficient ranges for the coefficients in the benchmark rule are used to characterize efficient classes of rules for Canada, France, Germany, Italy, the United Kingdom, and the United States, and to assess the efficiency of the interest rate policies actually employed in these countries from the early 1980s onwards.

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File URL: http://www.accessecon.com/pubs/VUECON/vu00-w43R.pdf
File Function: Revised version, 2001
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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0043.

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Date of creation: Oct 2000
Date of revision: Sep 2001
Handle: RePEc:van:wpaper:0043
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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  18. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
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  20. Mccallum, Bennet T., 1988. "Robustness properties of a rule for monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 173-203, January.
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