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Forecasting ECB policy rates with different monetary policy rules

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  • Belke, Ansgar
  • Klose, Jens

Abstract

This article compares two types of monetary policy rules - the Taylor-Rule and the Orphanides-Rule - with respect to their forecasting properties for the policy rates of the European Central Bank. In this respect the basic rules, results from estimated models and augmented rules are compared. Using quarterly real-time data from 1999 to the beginning of 2019, we find that an estimated Orphanides-Rule performs best in nowcasts, while it is outperformed by an augmented Taylor-Rule when it comes to forecasts. However, also a no-change rule delivers good results for forecasts, which is hard to beat for most policy rules.

Suggested Citation

  • Belke, Ansgar & Klose, Jens, 2019. "Forecasting ECB policy rates with different monetary policy rules," Ruhr Economic Papers 815, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
  • Handle: RePEc:zbw:rwirep:815
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    References listed on IDEAS

    as
    1. Mesonnier, Jean-Stephane & Renne, Jean-Paul, 2007. "A time-varying "natural" rate of interest for the euro area," European Economic Review, Elsevier, vol. 51(7), pages 1768-1784, October.
    2. Belke, Ansgar & Klose, Jens, 2013. "Modifying Taylor reaction functions in the presence of the zero‐lower‐bound — Evidence for the ECB and the Fed," Economic Modelling, Elsevier, vol. 35(C), pages 515-527.
    3. Brož, Václav & Kočenda, Evžen, 2018. "Dynamics and factors of inflation convergence in the European union," Journal of International Money and Finance, Elsevier, vol. 86(C), pages 93-111.
    4. Ansgar Belke & Jens Klose, 2011. "Does the ECB Rely on a Taylor Rule During the Financial Crisis? Comparing Ex-post and Real Time Data with Real Time Forecasts," Economic Analysis and Policy, Elsevier, vol. 41(2), pages 147-171, September.
    5. Jing Cynthia Wu & Fan Dora Xia, 2016. "Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 253-291, March.
    6. Athanasios Orphanides, 2001. "Monetary Policy Rules Based on Real-Time Data," American Economic Review, American Economic Association, vol. 91(4), pages 964-985, September.
    7. Holston, Kathryn & Laubach, Thomas & Williams, John C., 2017. "Measuring the natural rate of interest: International trends and determinants," Journal of International Economics, Elsevier, vol. 108(S1), pages 59-75.
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    10. Athanasios Orphanides & Volker Wieland, 2013. "Complexity and Monetary Policy," International Journal of Central Banking, International Journal of Central Banking, vol. 9(1), pages 167-204, January.
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    12. Janko Gorter & Jan Jacobs & Jakob De Haan, 2008. "Taylor Rules for the ECB using Expectations Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(3), pages 473-488, September.
    13. Ansgar Belke & Jens Klose, 2017. "Equilibrium Real Interest Rates and Secular Stagnation: An Empirical Analysis for Euro Area Member Countries," Journal of Common Market Studies, Wiley Blackwell, vol. 55(6), pages 1221-1238, November.
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    19. Orphanides, Athanasios, 2003. "Historical monetary policy analysis and the Taylor rule," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 983-1022, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Taylor-Rule; Orphanides-Rule; monetary policy rates; forecasting; European Central Bank;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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