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Measuring Monetary Policy Deviations from the Taylor Rule

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  • João Madeira
  • Nuno Palma

Abstract

We estimate deviations of the federal funds rate from the Taylor rule by taking into account the endogeneity of output and ináation to changes in interest rates. We do this by simulating the paths of these variables through a DSGE model using the estimated time series for the exogenous processes except for monetary shocks. We then show that taking the endogeneity of output and ináation into account can make a significant quantitative difference (which can exceed 40 basis points) when calculating the appropriate value of interest rates according to the Taylor rule.

Suggested Citation

  • João Madeira & Nuno Palma, 2018. "Measuring Monetary Policy Deviations from the Taylor Rule," Economics Discussion Paper Series 1803, Economics, The University of Manchester.
    • Handle: RePEc:man:sespap:1803
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    2. Carlos Madeira & João Madeira & Paulo Santos Monteiro, 2023. "The origins of monetary policy disagreement: the role of supply and demand shocks," BIS Working Papers 1118, Bank for International Settlements.
    3. Ali Mna & Hadda Kilani, 2023. "A monetary policy reaction function through Taylor rule vision: evidence from Tunisia," SN Business & Economics, Springer, vol. 3(8), pages 1-18, August.

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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