Open AccessDo the Monetary Policy Makers Follow Rules? Testing Taylor’s Rule for Nepal
Author(s) -
Khagendra Katuwal
Publication year - 2019
Publication title -
economic journal of nepal
Language(s) - English
Resource type - Journals
ISSN - 1018-631X
DOI - 10.3126/ejon.v42i1-2.35903
Subject(s) - taylor rule , monetary policy , output gap , economics , proxy (statistics) , econometrics , inflation (cosmology) , interest rate , inflation targeting , consumer price index (south africa) , treasury , real interest rate , taylor series , index (typography) , mathematics , statistics , central bank , macroeconomics , computer science , history , mathematical analysis , physics , archaeology , theoretical physics , world wide web
The study estimates Taylor’s rule for Nepal by using the annual time series data for the period of 1988-2018. As a requirement of Taylor's rule, the output gap has been estimated by using Hodric-Perscott filter. Consumer price index has been used as measure of inflation and 91-days treasury bills rate is taken as the proxy for the short-term interest rate set by central bank of Nepal. The ordinary least square method has been used to estimate the Taylor's equation The results show that. As Augmented Dickey-Fuller test shows that all the variables used in this study are in level form. The results show that there is a positive relationship of T-bills rule with inflation output gap. Interest rate smoothing is found to be a major concern of central bank of Nepal but follows the Taylor’s rule partially.