Estimating Taylor-Type Rules: An Unbalanced Regression?

Pierre L. Siklos and Mark Wohar

A chapter in Econometric Analysis of Financial and Economic Time Series, 2006, pp 239-276 from Emerald Group Publishing Limited

Abstract: Relying on Clive Granger's many and varied contributions to econometric analysis, this paper considers some of the key econometric considerations involved in estimating Taylor-type rules for US data. We focus on the roles of unit roots, cointegration, structural breaks, and non-linearities to make the case that most existing estimates are based on an unbalanced regression. A variety of estimates reveal that neglected cointegration results in the omission of a necessary error correction term and that Federal Reserve (Fed) reactions during the Greenspan era appear to have been asymmetric. We argue that error correction and non-linearities may be one way to estimate Taylor rules over long samples when the underlying policy regime may have changed significantly.

Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aecozz:s0731-9053(05)20029-4

DOI: 10.1016/S0731-9053(05)20029-4

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