Measuring monetary policy deviations from the Taylor rule

Joao Antonio Rodrigues Madeira; Nuno Palma

doi:10.1016/j.econlet.2018.03.034

Measuring monetary policy deviations from the Taylor rule

Joao Antonio Rodrigues Madeira, Nuno Palma

Economics

Research output: Contribution to journal › Article › peer-review

Abstract

We estimate deviations of the federal funds rate from the Taylor rule by taking into account the endogeneity of output and inflation to changes in interest rates. We do this by simulating the paths of these variables through a DSGE model using the estimated time series for the exogenous processes except for monetary shocks. We then show that taking the endogeneity of output and inflation into account can make a significant quantitative difference (which can exceed 40 basis points) when calculating the appropriate value of interest rates according to the Taylor rule.

Original language	English
Pages (from-to)	25-27
Number of pages	3
Journal	Economics Letters
Volume	168
Early online date	8 Apr 2018
DOIs	https://doi.org/10.1016/j.econlet.2018.03.034
Publication status	Published - Jul 2018

Bibliographical note

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10.1016/j.econlet.2018.03.034

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Cite this

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abstract = "We estimate deviations of the federal funds rate from the Taylor rule by taking into account the endogeneity of output and inflation to changes in interest rates. We do this by simulating the paths of these variables through a DSGE model using the estimated time series for the exogenous processes except for monetary shocks. We then show that taking the endogeneity of output and inflation into account can make a significant quantitative difference (which can exceed 40 basis points) when calculating the appropriate value of interest rates according to the Taylor rule.",

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