Interest rate reaction functions and the Taylor rule in the euro area

Traditional Taylor rules, which are estimated using a level specification linking the short-term interest rate to inflation and the output gap, are unstable when estimated on euro area data and forecast poorly out of sample. We present an alternative reaction function which takes the non-stationarity of the data into account. The estimated interest rate rule is stable and forecasts well. In contrast to the traditional Taylor rule, we find a ignificant role for the long rate, which we argue reflects shifts in the publicu0092s perception of the long-run inflation objective.

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Year of publication:	2003-09-01
Authors:	Gerlach-Kristen, Petra
Publisher:	European Central Bank
Subject:	EU-Staaten \| EU countries \| Europäische Wirtschafts- und Währungsunion \| European Economic and Monetary Union \| Kointegration \| Cointegration \| Taylor-Regel \| Taylor rule \| Zentralbank \| Central Bank \| Zinsstruktur \| Term structure of interest rates

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Extent:	527360 bytes 19 p. application/pdf
Series:	Working paper series / European Central Bank ; 258
Type of publication:	Book / Working Paper
Language:	English
Classification:	C22 - Time-Series Models ; E52 - Monetary Policy (Targets, Instruments, and Effects) ; Monetary Policy ; Interest Rates ; European Economic and Monetary Union ; EU ; Currency. Monetary policy ; Individual Working Papers, Preprints
Source:	ArchiDok

Persistent link: https://www.econbiz.de/10009635919