A survey on time-varying parameter Taylor rule: A model modified with interest rate pass-through

Ebru Yüksel, Kivilcim Metin-Ozcan and Ozan Hatipoglu
Authors registered in the RePEc Author Service: Kivilcim Metin Özcan

Economic Systems, 2013, vol. 37, issue 1, 122-134

Abstract: Today, the prime aim of central banking is to achieve price stability and, to a lesser extent, output stability. To this end, central banks use various monetary policy rules. This paper intends to provide a broad survey of the literature on Taylor-type monetary policy rules with a time-varying parameter (TVP) specification. To include the TVP feature, some modification is made in the monetary transmission mechanism of Taylor-type monetary policy models to account for the changing risk preference of individuals. In line with this approach, we introduce an interest rate pass-through specification of the monetary transmission process in a general equilibrium model to account for the varying perceptions of risk by individuals. We include an application for Turkey and estimate the time-variable parameters of the model by employing a structural extended Kalman filter (EKF). The results indicate that the EKF performs better than the standard Kalman filter in estimating the reaction function of the central bank.

Keywords: Extended Kalman filter (EKF); Interest rate pass-through; Monetary policy; Taylor rule; Time-varying parameter (TVP) (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: A Survey on Time Varying Parameter Taylor Rule: A Model Modified with Interest Rate Pass Through (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:37:y:2013:i:1:p:122-134

DOI: 10.1016/j.ecosys.2012.08.002

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