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Monetary Policy Estimation in Real Time: Forward‐Looking Taylor Rules without Forward‐Looking Data
Author(s) -
NIKOLSKORZHEVSKYY ALEX
Publication year - 2011
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2011.00400.x
Subject(s) - output gap , taylor rule , inflation (cosmology) , monetary policy , econometrics , economics , replicate , taylor series , real interest rate , interest rate , real time data , estimation , german , macroeconomics , computer science , mathematics , statistics , central bank , geography , mathematical analysis , physics , management , theoretical physics , world wide web , archaeology
I propose a methodology for estimating forward‐looking Taylor rules in real time when forward‐looking real‐time central bank data are unavailable. The methodology consists of choosing appropriate models to closely replicate U.S. Greenbook forecasts and then applying these models to Canada, Germany, and the U.K. The results show that German and U.S. Taylor rules are characterized by inflation coefficients increasing with the forecast horizon and a positive output gap response. The U.K. and Canada interest rate reaction functions achieve maximum inflation response at middle‐term horizons of about 1/2 years and the output gap coefficient is insignificant.