Article ID Journal Published Year Pages File Type
966499 Journal of Monetary Economics 2015 20 Pages PDF
Abstract
Interest rate decisions by central banks are universally discussed in terms of Taylor rules, which describe policy rates as responding to inflation and some measure of the output gap. We show that an alternative specification of monetary policy, in which the interest rate tracks the Wicksellian efficient rate of return as the primary indicator of real activity, fits the U.S. data better than otherwise identical Taylor rules. This result holds for a variety of specifications of the other ingredients of the policy rule, including the output gap, and of private agents׳ behavior.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
, , , ,