Asset Prices as Indicators of Euro Area Monetary Policy: An Empirical Assessment of Their Role in a Taylor Rule

P. Siklos & M. Bohl ()
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P. Siklos & M. Bohl: Wilfrid Laurier University, http://www.wlu.ca/homepage.php?grp_id=1805&ct_id=1
Authors registered in the RePEc Author Service: Pierre Siklos ()

Working Papers from Wilfrid Laurier University, Department of Economics

Abstract: This paper estimates standard and extended Taylor rules for core countries in the euro area, namely France, Germany and Italy, as well as for the ECB. We perform extensive tests for over-identifying restrictions and instrument relevance, a practice generally eschewed in previous work. We find that asset prices can be highly relevant as instruments rather than as separate arguments in policy rules. Forecast-based rules perform best using the root mean squared error metric but produce coefficients implying that central banks may be too aggressive at fighting inflation.

Keywords: Monetary policy reaction functions; asset prices; instruments; European Central Bank (search for similar items in EconPapers)
JEL-codes: E52 E58 C52 (search for similar items in EconPapers)
Date: 2006, Revised 2006
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Related works:
Working Paper: Asset Prices as Indicators of Euro Area Monetary Policy: An Empirical Assessment of Their Role in a Taylor Rule (2007)
Journal Article: Asset Prices as Indicators of Euro Area Monetary Policy: An Empirical Assessment of Their Role in a Taylor Rule (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:wlu:wpaper:eg0053

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