scholarly journals Measuring monetary policy deviations from the Taylor rule

2018 ◽  
Vol 168 ◽  
pp. 25-27 ◽  
Author(s):  
João Madeira ◽  
Nuno Palma
Keyword(s):  
Monetary Policy ◽  
Taylor Rule

Natural disasters and monetary policy: evidence from an augmented Taylor rule

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nicholas Apergis ◽  
James E. Payne
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Interest Rate ◽  
Natural Disasters ◽  
Natural Disaster ◽  
Taylor Rule ◽  
Nominal Interest Rate ◽  
Policy Response ◽  
Content Type ◽  
Short Run

Purpose The purpose of this paper is to examine the short-run monetary policy response to five different types of natural disasters (geophysical, meteorological, hydrological, climatological and biological) with respect to developed and developing countries, respectively. Design/methodology/approach An augmented Taylor rule monetary policy model is estimated using systems generalized method of moments panel estimation over the period 2000–2018 for a panel of 40 developed and 77 developing countries, respectively. Findings In the case of developed countries, the greatest nominal interest rate response originates from geophysical, meteorological, hydrological and climatological disasters, whereas for developing countries the nominal interest rate response is the greatest for geophysical and meteorological disasters. For both developed and developing countries, the results suggest the monetary authorities will pursue expansionary monetary policies in the short-run to lower nominal interest rates; however, the magnitude of the monetary response varies across the type of natural disaster. Originality/value First, unlike previous studies, which focused on a specific type of natural disaster, this study examines whether the short-run monetary policy response differs across the type of natural disaster. Second, in relation to previous studies, the analysis encompasses a much larger panel data set to include 117 countries differentiated between developed and developing countries.

scholarly journals The Unpleasant Arithmetic of the Taylor Rule

2020 ◽  
Vol 8 (3) ◽  
pp. p89
Author(s):  
Alejandro Rodriguez-Arana
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Phillips Curve ◽  
Taylor Rule ◽  
Independent Component ◽  
Elasticity Of Substitution ◽  
Interest Rate Rule

This paper analyzes the effect of a monetary policy that raises the reference interest rate in order to reduce inflation in a situation where the fiscal policy parameters remain constant. In an overlapping generation’s model and in the presence of an accelerationist Phillips curve and a Taylor rule of interest rates, it is observed that increasing the independent component of said rule leads to a solution that at least in a large number of cases is unstable. In the case where the elasticity of substitution is greater than one, inflation falls temporarily, but then it can increase in an unstable manner. One way to achieve stability is to establish an interest rate rule where Taylor’s principle is not met. However, in this case many times the increase in the independent component of this rule will generate greater long-term inflation.

The Taylor Rule and Monetary Policy in the Euro Area

2004 ◽  
Author(s):  
Jean-Stéphane Mésonnier ◽  
Jean-Paul Renne
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Taylor Rule

Can a Taylor rule better explain the Fed’s monetary policy through the 1920s and 1930s? A nonlinear cliometric analysis

2018 ◽  
Vol 22 (5) ◽  
Author(s):  
Olivier Damette ◽  
Fredj Jawadi ◽  
Antoine Parent
Keyword(s):  
Monetary Policy ◽  
Business Cycle ◽  
Interwar Period ◽  
Taylor Rule ◽  
Structural Break ◽  
Output Gap ◽  
Time Varying ◽  
Working Paper ◽  
The Great Depression ◽  
Monetary Regimes

Abstract This paper investigates whether a variant of a Taylor rule applied to historical monetary data of the interwar period is useful to gain a better understanding of the Fed’s conduct of monetary policy over the period 1920–1940. To this end, we considered a standard Taylor rule (using two drivers: output gap and inflation gap) and proxied them differently for robustness. Further, we extended this Taylor rule to a nonlinear framework while enabling its coefficient to be time-varying and to change with regard to the phases in business cycle, in order to better capture any further asymmetry in the data and the structural break induced by the Great Depression. Accordingly, we showed two important findings. First, the linearity hypothesis was rejected, and we found that an On/Off Taylor Rule is appropriate to reproduce the conduct of monetary policy during the interwar period more effectively (the activation of drivers only occurs per regime). Second, unlike Field [Field, A. 2015. “The Taylor Rule in the 1920s.” Working Paper], we validated the use of a Taylor rule to explain the conduct of monetary policy in history more effectively. Consequently, this nonlinear Taylor rule specification provides interesting results for a better understanding of monetary regimes during the interwar period, and offers useful complements to narrative monetary history.

scholarly journals “WAIT-AND-SEE” MONETARY POLICY

2017 ◽  
Vol 23 (5) ◽  
pp. 1793-1814 ◽  
Author(s):  
Xiaowen Lei ◽  
Michael C. Tseng
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Taylor Rule ◽  
Adjustment Costs ◽  
Optimal Timing ◽  
Bank Of Canada ◽  
Wait And See ◽  
The Interest Rate ◽  
Better Than

This paper develops a model of the optimal timing of interest rate changes. With fixed adjustment costs and ongoing uncertainty, changing the interest rate involves the exercise of an option. Optimal policy therefore has a “wait-and-see” component, which can be quantified using option pricing techniques. We show that increased uncertainty makes the central bank more reluctant to change its target interest rate, and argue that this helps explain recent observed deviations from the Taylor Rule. An optimal wait-and-see policy fits the target interest rates of the Fed and Bank of Canada better than the Taylor Rule.

Term Premium Dynamics and the Taylor Rule

2017 ◽  
Vol 07 (04) ◽  
pp. 1750011 ◽  
Author(s):  
Michael Gallmeyer ◽  
Burton Hollifield ◽  
Francisco Palomino ◽  
Stanley Zin
Keyword(s):  
Monetary Policy ◽  
Term Structure ◽  
Taylor Rule ◽  
Exchange Economy ◽  
Bond Pricing ◽  
Time Varying ◽  
Inflation Dynamics ◽  
Term Premium ◽  
Nominal Term

We explore the bond-pricing implications of an exchange economy where preference shocks result in time-varying term premiums in real yields with a Taylor rule determining inflation dynamics and nominal term premiums. We calibrate the model by matching the term structure of the means and volatilities of nominal yields. Unlike a model with exogenous inflation, a Taylor rule matching empirical properties of inflation leads to nominal term premiums that are volatile at long maturities. Increasing monetary policy aggressiveness decreases the level and volatility of nominal yields.

A Review of Monetary Policy Rules

2001 ◽  
Vol 39 (2) ◽  
pp. 562-566 ◽  
Author(s):  
Christopher A Sims
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Taylor Rule ◽  
Real Output ◽  
Policy Rule ◽  
Policy Rules ◽  
Monetary Policy Rules ◽  
John Taylor

This article reviews Monetary Policy Rules, edited by John Taylor. The book evaluates the Taylor rule, a policy rule that specifies changes in the central bank's interest rate according to what is happening to two variables, real output and inflation. Questions are raised about (a) how well the models fit the data; (b) the validity of the assumption that there has been clear improvement in monetary policy; and (c) the rule's microfoundations.

scholarly journals The Monetary Policy of the National Bank of Romania in The Inflation Targeting Era. A Taylor Rule Approach

2015 ◽  
Vol 8 (2) ◽  
pp. 91-102
Author(s):  
Bogdan Căpraru ◽  
Norel Ionuţ Moise ◽  
Andrei Rădulescu
Keyword(s):  
Monetary Policy ◽  
Financial Stability ◽  
Inflation Targeting ◽  
Taylor Rule ◽  
Output Gap ◽  
Inflation Differential ◽  
Rule Approach ◽  
National Bank ◽  
Potential Gdp ◽  
The One

AbstractIn this paper we analyse the monetary policy of the National Bank of Romania during 2005-2015 by estimating the Taylor rule, on a quarterly basis. We determined the potential GDP by employing the Hodrick-Prescott filter, in order to distinguish between the cyclical and the structural components of the output. Then, we estimated the traditional Taylor rule function (with a classic OLS regression), but slightly modified, as to take into account the forward-looking attitude of the NBR. The results confirm the direct correlation between the monetary policy rate and the output gap on the one hand, and the inflation differential (inflation - inflationtarget) on the other hand. Also, the results show us that NBR paid a higher attention to the dynamics of the inflation versus its target than to the output gap. Last, but not least, the central bank has been also sensitive to the financial stability, as reflected by the results of the incorporation of the ROBOR-EURIBOR spread in the classical Taylor rule.

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