The Observational Equivalence of Taylor Rule and Taylor-Type Rules

A. Patrick Minford, Naveen Srinivasan and Francesco Perugini

No 2959, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In the past few years the view has commonly been expressed that central banks follow `Taylor Rules' (as first promulgated by Henderson and McKibbin (1993)). We show that the appearance of such an interest rate rule ? a ?pseudo-Taylor rule? ? can be created by a standard macro model in which actually a money supply rule is operating with no interest rate feedback ? i.e, where there is in fact no Taylor rule operating at all. Hence an interest equation does not identify a (structural) Taylor rule; a Taylor rule and a pseudo-rule, though corresponding to different structural models, are ?observationally equivalent? to use the expression coined by Thomas Sargent (1976). It remains an open question whether Taylor rules or money supply rules are appropriate from a welfare viewpoint.

Keywords: Observational equivalence; Monetary policy rules (search for similar items in EconPapers)
JEL-codes: D50 E40 E52 (search for similar items in EconPapers)
Date: 2001-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://cepr.org/publications/DP2959 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: The Observational Equivalence of Taylor Rule and Taylor-type Rules (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:2959

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP2959

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().