In-sample and out-of-sample properties of linear and nonlinear Taylor rules

This paper examines the in-sample and out-of-sample properties of linear and nonlinear Taylor rules using real-time US data. We find that: (i) in-sample and out-of-sample performance measures generally select the same functional form for the Taylor rule and that (ii) the form of the Taylor rule differs across the pre-Greenspan and Greenspan sample periods. However, when we compare the out-of-sample forecasting performance of the Taylor rules to those of univariate models of the federal funds rate, we find it quite interesting that the univariate models forecast better than the Taylor rules after, but not before, 1979.