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Monetary policy rules with PID control features: evidence from the UK, USA and EU

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  • David Shepherd
  • Rebeca I. Muñoz Torres
  • George Saridakis

Abstract

This paper considers the extent to which the monetary policy operations of three major central banks can be regarded as an application of Proportional-Integral-Derivative (PID) control rules. The paper outlines the general PID framework and estimates a series of dynamic models to identify how interest rate policy adjustments are affected by the rate of inflation and the level of macroeconomic activity. The paper examines data for the UK, the USA and the Eurozone. The results suggest that the PID rules can provide a useful theoretical and empirical framework for estimating central bank responses to the inflation and macroeconomic activity variables by improving the explanatory power of the Taylor rule model and determining the effect of the parameters.

Suggested Citation

  • David Shepherd & Rebeca I. Muñoz Torres & George Saridakis, 2019. "Monetary policy rules with PID control features: evidence from the UK, USA and EU," International Review of Applied Economics, Taylor & Francis Journals, vol. 33(6), pages 737-755, November.
    • Handle: RePEc:taf:irapec:v:33:y:2019:i:6:p:737-755
    DOI: 10.1080/02692171.2019.1585766
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