Skip to main content Accessibility help
×
Hostname: page-component-78c5997874-m6dg7 Total loading time: 0 Render date: 2024-11-05T15:43:21.991Z Has data issue: false hasContentIssue false

12 - Taylor rule uncertainty: believe it or not

from Part III - Policy

Published online by Cambridge University Press:  05 February 2014

Andrea Buraschi
Affiliation:
University of Chicago
Andrea Carnelli
Affiliation:
Imperial College London
Paul Whelan
Affiliation:
Imperial College London
Jagjit S. Chadha
Affiliation:
National Institute of Economic and Social Research, London
Alain C. J. Durré
Affiliation:
European Central Bank, Frankfurt
Michael A. S. Joyce
Affiliation:
Bank of England
Lucio Sarno
Affiliation:
City University London
Get access

Summary

“Not to be absolutely certain is, I think, one of the essential things in rationality.”

(Bertrand Russell in Am I An Atheist Or An Agnostic?)

12.1 Introduction

This chapter studies agents' perception of US monetary policy from 1986 to 2011 by fitting expected Taylor rules to a unique dataset of macroeconomic forecasts. The use of subjective forecasts allows us to investigate the extent to which agents believe the Fed are following a given policy function, and to quantify the uncertainty associated with these beliefs. This is important since it allows us to study questions relating to the conduct of Central Bank policy. For example, in recent years Chairman Bernanke has vigorously supported the idea that announcements, if credible, can have the same effect as effective policy actions. This requires people to believe in the monetary rule that is used to anchor expectations. By estimating subjective expected Taylor rules, we provide a novel empirical identification scheme to address such questions.

Since at least the tenure of Chairman Volcker, it has generally been understood that US monetary policy is empirically well described by a Taylor (1993) rule (see, among others, Levin, Wieland, and Williams (2003)). Taylor rules are recipes that call for the adjustment of the policy instrument (the federal funds rate in the case of the US) in response to rising inflation and/or temporary deviations of output from its potential level (see Clarida, Gali, and Gertler (1999)).

Type
Chapter
Information
Publisher: Cambridge University Press
Print publication year: 2014

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Save book to Kindle

To save this book to your Kindle, first ensure [email protected] is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×