How Different are Money Supply Rules from Taylor Rules?

A. Patrick Minford, Francesco Perugini and Naveen Srinivasan

Indian Economic Review, 2003, vol. 38, issue 2, 157-166

Abstract: In this paper we show that a money supply rule (a Taylor-type rule) and a Taylor rule produce substantial stochastic differences in the behavior of the economy. Hence it remains an open question whether one or other type of central bank behavior does a better job in welfare terms-contrary to a recent study (Clarida et al.1999) which called Taylor rules the ‘modern science of monetary policy’, thereby suggesting that other rules are essentially inferior. We show with illustrative calibration that the rules may produce very different welfare outcomes.

Keywords: Monetary Policy Rules; Stochastic Behavior (search for similar items in EconPapers)
JEL-codes: E5 E52 (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (7)

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