Que Nous Révèlent les Fonctions de Réaction à Propos des Préférences des Banques Centrales?

Since Taylor’s (1993) paper researchers have invested a lot effort to estimation of monetary policy rules. Taylor (1993) showed that a simple reaction function of the central bank, with the interest rate as a monetary policy instrument and inflation and the output gap as explanatory variables, pretty much describes the rate (of Basic interest) of the Federal Reserve (US) between 1987 and 1992. Frequently, the Taylor rule coefficients are interpreted as if they reflect the preferences of the central bank. However, such an interpretation can lead to poor decision making. In this study, we show that the Taylor rule coefficients are complicated terms including preferences parameters as well as parameters associated with the structure of the economy. We illustrate our conclusion that the coefficients of the Taylor rule cannot be interpreted as reflecting the preferences of the central bank by estimating standard forward-looking Taylor rules for the BCEAO and to compare these with our results obtained by the method of Favero and Rovelli (2002), in order to detect the preferences of the central bank. This analysis leads us to the conclusion that the coefficients of the Taylor rule cannot be interpreted as indicators of the preferences of the central bank. Our results reveal that BCEAO authorities have preferences for smoothing interest rates and the stabilization of the output gap, however, the 2% inflation target is a major challenge.