IDEAS home Printed from https://ideas.repec.org/p/adl/wpaper/2025-03.html
   My bibliography  Save this paper

Time-Varying Inflation Target and Unbiased Taylor Rule Estimation

Author

Listed:
  • Joshua Brault

    (Bank of Canada)

  • Qazi Haque

    (The University of Adelaide)

  • Louis Phaneuf

    (Université du Québec à Montréal)

Abstract

Taylor rule estimation can be biased if the central bank’s inflation target is counterfactually held fixed. First, we identify in the standard New Keynesian model a downward bias affecting the OLS estimate of the policy response to inflation. Based on simulations from a similar model with positive trend inflation, we show that the policy response to inflation is nearly half the true value with large inflation target fluctuations, as purportedly exhibited by the Fed during the 1960s and 1970s. Second, we implement a procedure for estimating DSGE models using a novel population-based MCMC routine known as parallel tempering. Applying this procedure to a medium-scale DSGE model with positive trend inflation, we do not find evidence of a bias when jointly estimating model parameters and the unobserved time-varying inflation target.

Suggested Citation

  • Joshua Brault & Qazi Haque & Louis Phaneuf, 2025. "Time-Varying Inflation Target and Unbiased Taylor Rule Estimation," School of Economics and Public Policy Working Papers 2025-03 Classification-E5, University of Adelaide, School of Economics and Public Policy.
    • Handle: RePEc:adl:wpaper:2025-03
    as

    Download full text from publisher

    File URL: https://media.adelaide.edu.au/economics/papers/doc/wp2025-03.pdf
    Download Restriction: no
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:adl:wpaper:2025-03. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Qazi Haque (email available below). General contact details of provider: https://edirc.repec.org/data/decadau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.