The Relevance of International Spillovers and Asymmetric Effects in the Taylor Rule

Joscha Beckmann, Ansgar Belke and Christian Dreger

No 201410, ROME Working Papers from ROME Network

Abstract: Deviations of policy interest rates from the levels implied by the Taylor rule have been persistent before the financial crisis and increased especially after the turn of the century. Compared to the Taylor benchmark, policy rates were often too low. This paper provides evidence that both international spillovers, for instance international dependencies in the interest rate setting of central banks, and nonlinear reaction patterns can offer a more realistic specification of the Taylor rule in the main industrial countries. The inclusion of international spillovers and, even more, nonlinear dynamics improves the explanatory power of standard Taylor reaction functions. Deviations from Taylor rates tend to be smaller and their negative trend can be eliminated.

Keywords: Taylor rule; international spillovers; monetary policy interaction; smooth transition models (search for similar items in EconPapers)
JEL-codes: C22 E43 F36 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2014-09
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The relevance of international spillovers and asymmetric effects in the Taylor rule (2017)
Working Paper: The Relevance of International Spillovers and Asymmetric Effects in the Taylor Rule (2015)
Working Paper: The Relevance of International Spillovers and Asymmetric Effects in the Taylor Rule (2014)
Working Paper: The relevance of international spillovers and asymmetric effects in the Taylor rule (2014)
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