The Library
Can central banks’ monetary policy be described by a linear (augmented) Taylor rule or by a nonlinear rule?
Tools
Castro, Vítor (2011) Can central banks’ monetary policy be described by a linear (augmented) Taylor rule or by a nonlinear rule? Journal of Financial Stability, Vol.7 (No.4). pp. 228-246. doi:10.1016/j.jfs.2010.06.002 ISSN 1572-3089.
Research output not available from this repository.
Request-a-Copy directly from author or use local Library Get it For Me service.
Official URL: http://dx.doi.org/10.1016/j.jfs.2010.06.002
Abstract
The original Taylor rule establishes a simple linear relation between the interest rate, inflation and the output gap. An important extension to this rule is the assumption of a forward-looking behaviour of central banks. Now they are assumed to target expected inflation and output gap instead of current values of these variables. Using a forward-looking monetary policy reaction function, this paper analyses whether central banks' monetary policy can indeed be described by a linear Taylor rule or, instead, by a nonlinear rule. It also analyses whether that rule can be augmented with a financial conditions index containing information from some asset prices and financial variables. The results indicate that the monetary behaviour of the European Central Bank and Bank of England is best described by a nonlinear rule, but the behaviour of the Federal Reserve of the United States can be well described by a linear Taylor rule. Our evidence also suggests that only the European Central Bank is reacting to financial conditions. (C) 2010 Elsevier B.V. All rights reserved.
Item Type: | Journal Article | ||||
---|---|---|---|---|---|
Subjects: | H Social Sciences > HB Economic Theory | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Journal or Publication Title: | Journal of Financial Stability | ||||
Publisher: | Elsevier Inc. | ||||
ISSN: | 1572-3089 | ||||
Official Date: | 2011 | ||||
Dates: |
|
||||
Volume: | Vol.7 | ||||
Number: | No.4 | ||||
Number of Pages: | 19 | ||||
Page Range: | pp. 228-246 | ||||
DOI: | 10.1016/j.jfs.2010.06.002 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Restricted or Subscription Access |
Data sourced from Thomson Reuters' Web of Knowledge
Request changes or add full text files to a record
Repository staff actions (login required)
View Item |