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Policy rate decisions and unbiased parameter estimation in typical monetary policy rules

Author

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  • Podpiera, Jiří

Abstract

Policymakers do not always follow a simple rule for setting policy rates for various reasons and thus their choices are co-driven by a decision to follow a rule or not. Consequently, some observations are censored and cause bias in conventional estimators of typical Taylor rules. To account for the censored and discrete process of policy rate setting, I devise a new method for monetary policy rule estimation and demonstrate its ability to outperform the existing conventional estimators using two examples. JEL Classification: E4, E5

Suggested Citation

  • Podpiera, Jiří, 2007. "Policy rate decisions and unbiased parameter estimation in typical monetary policy rules," Working Paper Series 771, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2007771
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp771.pdf
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    Cited by:

    1. Podpiera, Jirí, 2008. "The role of ad hoc factors in policy rate settings," Economic Modelling, Elsevier, vol. 25(5), pages 1003-1010, September.

    More about this item

    Keywords

    bias in parameters; monetary policy; policy rule;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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