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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
Download Restriction: no

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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  1. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-86, September.
  2. 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.
  3. Apostolos Serletis, 1992. "The Random Walk in Canadian Output," Canadian Journal of Economics, Canadian Economics Association, vol. 25(2), pages 392-406, May.
  4. 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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