Taylor Rule Revisited: from an Econometric Point of View

Claudia Kurz () and Jeong-Ryeol Kurz-Kim ()
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Claudia Kurz: University of Applied Sciences Mainz, Germany
Jeong-Ryeol Kurz-Kim: Deutsche Bundesbank, Germany

Review of Economics & Finance, 2011, vol. 1, 46-51

Abstract: Based on a more realistic assumption, we modify the Taylor regression. The modified Taylor regression gives an explanation of why the (standard) Taylor regression is spurious (in the econometric sense, i.e. no stable relationship among the variables of interest) and, at the same time, a solution as to how central bank monetary policy can still be described by the Taylor rule. An empirical example using euro-area data confirms the compatibility of our modification with empirical data.

Keywords: Taylor rule; Monetary policy; Inflation; Output gap; Cointegration (search for similar items in EconPapers)
JEL-codes: C12 C51 E52 E58 (search for similar items in EconPapers)
Date: 2011
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