The Use and Abuse of Taylor Rules; How Precisely Can We Estimate Them?
Robert Tchaidze and
Alina Carare ()
No 05/148, IMF Working Papers from International Monetary Fund
This paper draws attention to inconsistencies in estimating simple monetary policy rules and their implications for policy advice. We simulate a macroeconomic model with a backward reaction function similar to Taylor (1993). We estimate different versions of a policy rule, using these simulated data. Under certain circumstances, estimations document an illusionary presence of a lagged interest rate, or of forward-looking behavior. Our results are consistent with the fact that several authors found very different versions of monetary policy rules, all fitting the U.S. data well. We also survey the literature, providing a list of issues complicating practical use of Taylor rules.
Keywords: Central banks and their policies; Central banks; Monetary policy; central bank, Taylor rules, inflation, monetary policy rules, monetary economics, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-fin, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30) Track citations by RSS feed
Downloads: (external link)
Working Paper: The Use and Abuse of Taylor Rules: How Precisely Can We Estimate Them? (2008)
Working Paper: The Use and Abuse of Taylor Rules: How precisely can we estimate them? (2004)
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:imf:imfwpa:05/148
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Jim Beardow ().