Measuring monetary policy deviations from the Taylor rule

Nuno Palma and Joao Madeira

No 12553, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We estimate deviations of the federal funds rate from the Taylor rule by taking into account the endogeneity of output and inflation to changes in interest rates. We do this by simulating the paths of these variables through a DSGE model using the estimated time series for the exogenous processes except for monetary shocks. We then show that taking the endogeneity of output and inflation into account can make a significant quantitative difference (which can exceed 40 basis points) when calculating the appropriate value of interest rates according to the Taylor rule.

Keywords: Interest rates; New keynesian models; Sticky prices; Dsge; Business cycles; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: E32 E37 E50 (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Measuring monetary policy deviations from the Taylor rule (2018)
Working Paper: Measuring Monetary Policy Deviations from the Taylor Rule (2018)
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