The Evolution of Taylor Rules and Its Simulation Analysis

Guangyi Cai ()
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Guangyi Cai: Xiamen University, School of mathematical sciences

A chapter in Proceedings of the 2024 3rd International Conference on Public Service, Economic Management and Sustainable Development (PESD 2024), 2024, pp 115-125 from Springer

Abstract: Abstract Taylor rules are one of the most frequently applied monetary policy guidelines by the Federal Reserve, and also an important tool for the market to analyze and predict the trend of the Federal Reserve’s policy interest rate. However, after 2000, especially after the subprime mortgage crisis, the explanatory and indicative function of Taylor rules for policy interest rates has significantly decreased. Against this background, Federal Reserve officials and economists have made a series of revisions to the variables and parameters used in Taylor rules, and several revised versions of the original Taylor rules have appeared one after another. Empirical tests have been conducted on the fit between the theoretical interest rate and the federal funds rate on several of the main versions. At the same time, it was found that the Fed’s policy interest rate adjustment actions generally lag behind the guidance of Taylor rules, and the width of the interest rate range under the guidance of Taylor rules is generally larger than the adjustment range of the Fed’s policy interest rate.

Keywords: Tayor Rules; Bernanke Rules; Yellen Rules (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-598-0_14

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DOI: 10.2991/978-94-6463-598-0_14

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