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Taylor Rules and Interest Rate Smoothing in the US and EMU

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  • Efrem Castelnuovo

    (Bocconi University)

Abstract

In this paper we estimate simple Taylor rules paying a particular attention to interest rate smoothing. Following English, Nelson, and Sack (2002), we employ a model in first differences to gain some insights on the presence and significance of the degree of partial ad- justment. Moreover, we estimate a nested model to take both interest rate smoothing and serially correlated deviations from various Taylor rate prescriptions into account. Our findings suggest that the lagged interest rate enters the Taylor rule in its own right, and may very well coexist with a serially correlated policy shock. Asymmetric preferences on the output gap level and financial indicators turn out to be impor- tant factors to understand Greenspan’s policy conduct. By contrast, our findings support standard regressors for the ’European’ Taylor rule.

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  • Efrem Castelnuovo, 2003. "Taylor Rules and Interest Rate Smoothing in the US and EMU," Macroeconomics 0303002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0303002
    Note: Type of Document - Acrobat PDF; prepared on HP PC; to print on HP; pages: 33; figures: included
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    2. C. Moons & A. Van Poeck, 2007. "Does one size fit all? A Taylor-rule based analysis of monetary policy for current and future EMU members," Applied Economics, Taylor & Francis Journals, vol. 40(2), pages 193-199.
    3. Leon, Costas, 2006. "The Taylor rule: can it be supported by the data?," MPRA Paper 1650, University Library of Munich, Germany.
    4. Batini, Nicoletta & Justiniano, Alejandro & Levine, Paul & Pearlman, Joseph, 2006. "Robust inflation-forecast-based rules to shield against indeterminacy," Journal of Economic Dynamics and Control, Elsevier, vol. 30(9-10), pages 1491-1526.
    5. Charles Evans & Jonas Fisher & Francois Gourio & Spencer Krane, 2015. "Risk Management for Monetary Policy Near the Zero Lower Bound," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(1 (Spring), pages 141-219.
    6. Nicoletta Batini & Paul Levine, 2004. "Robust Control Rules to Shield Against Indeterminacy," Computing in Economics and Finance 2004 339, Society for Computational Economics.
    7. Emanuele Ciola & Enrico Turco & Andrea Gurgone & Davide Bazzana & Sergio Vergalli & Francesco Menoncin, 2022. "Charging the macroeconomy with an energy sector: an agent-based model," Working Papers 2022.09, Fondazione Eni Enrico Mattei.
    8. Ciola, Emanuele & Turco, Enrico & Gurgone, Andrea & Bazzana, Davide & Vergalli, Sergio & Menoncin, Francesco, 2023. "Enter the MATRIX model:a Multi-Agent model for Transition Risks with application to energy shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).

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    More about this item

    Keywords

    Taylor rules omitted variables serial correlation interest rate smoothing;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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