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An Empirical Analysis of the Taylor Rule and Its Application to Monetary Policy: A Case for the United Kingdom and Euro Area

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  • Keshab Bhattarai
  • Matthew Carter

Abstract

This paper analyses the Taylor rule and its application to monetary policy in the United Kingdom and Euro area. The analysis uses a linear regression on quarterly economic data from 1993Q1 to 2017Q4 for the United Kingdom and 2000Q1 to 2016Q4 for the Euro area. The results show that the Taylor rule does not fully describe the monetary policy actions made by the Bank of England and European Central Bank over the period analysed; and, that both central banks engage in a significant level of interest rate smoothing. The results also suggest that the Taylor rule does not provide the rationale for quantitative easing within the two regions and that interest rates should be higher than they currently are.

Suggested Citation

  • Keshab Bhattarai & Matthew Carter, 2018. "An Empirical Analysis of the Taylor Rule and Its Application to Monetary Policy: A Case for the United Kingdom and Euro Area," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 5(2), pages 173-182.
    • Handle: RePEc:aoj:ajeaer:v:5:y:2018:i:2:p:173-182:id:257
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    Cited by:

    1. Nor Balkish Zakaria & Muhammad Farhan Nordin & Rahimah Mohamed Yunos & Jamaliah Said, 2019. "The Integrity of Local Enforcement Officers: Self Proclaim vs Colleague Perception," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(5), pages 288-300, August.
    2. Obsatar Sinaga & Mohd Haizam Mohd Saudi & Djoko Roespinoedji & Mohd Shahril Ahmad Razimi, 2019. "The Dynamic Nexus of Digital Evolution, Environmental Turbulence and Environmental Performance: A Case of High-tech Industries in the Emerging 4th Industrial Revolution," International Journal of Energy Economics and Policy, Econjournals, vol. 9(6), pages 386-393.

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