Measuring monetary policy deviations from the Taylor rule

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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.

Bibliographical metadata

Original languageEnglish
Pages (from-to)25-27
Number of pages3
JournalEconomics Letters
Volume168
Early online date8 Apr 2018
DOIs
Publication statusPublished - Jul 2018

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