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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.

Suggested Citation

  • Diana N. Weymark, 2000. "Using Taylor Rules as Efficiency Benchmarks," Vanderbilt University Department of Economics Working Papers 0043, Vanderbilt University Department of Economics, revised Sep 2001.
  • Handle: RePEc:van:wpaper:0043

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    References listed on IDEAS

    1. Glenn D. Rudebusch, 2002. "Assessing Nominal Income Rules for Monetary Policy with Model and Data Uncertainty," Economic Journal, Royal Economic Society, vol. 112(479), pages 402-432, April.
    2. Edward Nelson, 2000. "UK monetary policy 1972-97: a guide using Taylor rules," Bank of England working papers 120, Bank of England.
    3. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-1286, September.
    4. Apostolos Serletis, 1992. "The Random Walk in Canadian Output," Canadian Journal of Economics, Canadian Economics Association, vol. 25(2), pages 392-406, May.
    5. Taylor, John B., 1999. "The robustness and efficiency of monetary policy rules as guidelines for interest rate setting by the European central bank," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 655-679, June.
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    Cited by:

    1. Diana N. Weymark, 2001. "Inflation Targeting, Announcements, and Imperfect Credibility," Vanderbilt University Department of Economics Working Papers 0124, Vanderbilt University Department of Economics, revised Apr 2002.

    More about this item


    interest rate rule; monetary policy rule; Taylor rule;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy


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