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Estimating Taylor-Type Rules: An Unbalanced Regression?

In: Econometric Analysis of Financial and Economic Time Series

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  • Pierre L. Siklos
  • Mark E. Wohar

Abstract

Relying on Clive Granger's many and varied contributions to econometric analysis, this paper considers some of the key econometric considerations involved in estimating Taylor-type rules for US data. We focus on the roles of unit roots, cointegration, structural breaks, and non-linearities to make the case that most existing estimates are based on an unbalanced regression. A variety of estimates reveal that neglected cointegration results in the omission of a necessary error correction term and that Federal Reserve (Fed) reactions during the Greenspan era appear to have been asymmetric. We argue that error correction and non-linearities may be one way to estimate Taylor rules over long samples when the underlying policy regime may have changed significantly.

Suggested Citation

  • Pierre L. Siklos & Mark E. Wohar, 2006. "Estimating Taylor-Type Rules: An Unbalanced Regression?," Advances in Econometrics, in: Econometric Analysis of Financial and Economic Time Series, pages 239-276, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:aecozz:s0731-9053(05)20029-4
    DOI: 10.1016/S0731-9053(05)20029-4
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    Cited by:

    1. Joscha Beckmann & Robert L. Czudaj, 2023. "The role of expectations for currency crisis dynamics—The case of the Turkish lira," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(3), pages 625-642, April.

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