Commodity Prices, Monetary Policy and the Taylor Rule
Darren Hudson (),
A. Alexandre Trindade and
No 266719, 2018 Annual Meeting, February 2-6, 2018, Jacksonville, Florida from Southern Agricultural Economics Association
One way to analyze the impact of commodity price shocks on monetary policy is to think about short-term interest rates set by Fed according to the Taylor rule. Taylor (1993) suggested a policy reaction function for moderating short-term interest rates to achieve the two-fold goals of stabilizing economic growth in the short-term and inflation in the long-term. One important question is why monetary policy makers focus on core inflation instead of headline inflation. Therefore, the main goal of this research article is to study the pattern of monetary policy responses to commodity price shocks derived from an impulse response function (IRF). To do this, we first estimate two individual Taylor rules based on core and headline consumer price index (CPI) inflation by using real-time data of the US economy for the Greenspan years from 1987 to 2006 and predict the residuals. Then, we estimate two regressions for core and headline CPI inflation as our two individual dependent variables against some independent variables including commodity price shocks, and the Taylor rule residuals. At the end, we predict the monetary policy responses to commodity price shocks by using IRF analysis in multivariate systems of a vector autoregression (VAR) model.
Keywords: Consumer/Household Economics; Financial Economics; Research Methods/ Statistical Methods (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Working Paper: Commodity Prices, Monetary Policy and the Taylor Rule (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ags:saea18:266719
Access Statistics for this paper
More papers in 2018 Annual Meeting, February 2-6, 2018, Jacksonville, Florida from Southern Agricultural Economics Association Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().