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Taylor rules, central bank preferences and inflation targeting

Juan Paez-Farrell

No 2015023, Working Papers from The University of Sheffield, Department of Economics

Abstract: The objective of this paper is to infer the policy preferences of three inflation targeting central banks, Australia, Canada and New Zealand, using an estimated New Keynesian small open economy model. While I assume that the monetary authorities optimise, I depart from previous research by assuming that monetary policy is implemented via simple Taylor-type rules, as suggested by most of the empirical literature. I then derive the weights in the objective function that make the resulting optimal interest rate rule coincide with its estimated counterpart. Therefore, from the central bank’s point of view, actual policy is optimal.

Keywords: Small open economies; monetary policy; policy preferences; Taylor rule; inverse opti-mal control; inflation targeting (search for similar items in EconPapers)
JEL-codes: E52 E58 E61 F41 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2015-11
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-mac and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (7)

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http://www.sheffield.ac.uk/economics/research/serps/articles/2015_023 First version, November 2015 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:shf:wpaper:2015023

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