Taylor’s Rule Estimation and Monetary Policy Identification

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2003

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Revue économique

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Cairn.info

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Stéphane Auray et al., « Taylor’s Rule Estimation and Monetary Policy Identification », Revue économique, ID : 10670/1.f936be...

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This paper assesses the joint behavior of the nominal interest rate and the inflation in a sticky prices model with exogenous money growth rule. Using a limited information estimation method, we identify and estimate the relation between the nominal interest rate and the expected inflation implied by the model. The estimated parameter is similar to the one obtained from actual data. This result casts doubt on the identification and estimation methods of the Taylor rule, when this rule is used as a guideline for the central bank to follow. However, if the Taylor rule is considered as a description of the monetary policy, our results suggest that the sticky prices model is able to account for the data.Classification JEL: E4, E5

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