Abstract

http://ssrn.com/abstract=1553978
 
 

Citations (4)



 


 



The Taylor Rule and the Practice of Central Banking


Pier Francesco Asso


University of Palermo

George A. Kahn


Federal Reserve Bank of Kansas City

Robert Leeson


affiliation not provided to SSRN

February 16, 2010


Abstract:     
The Taylor rule has revolutionized the way many policymakers at central banks think about monetary policy. It has framed policy actions as a systematic response to incoming information about economic conditions, as opposed to a period-by-period optimization problem. It has emphasized the importance of adjusting policy rates more than one-for-one in response to an increase in inflation. And, various versions of the Taylor rule have been incorporated into macroeconomic models that are used at central banks to understand and forecast the economy.

This paper examines how the Taylor rule is used as an input in monetary policy deliberations and decision-making at central banks. The paper characterizes the policy environment at the time of the development of the Taylor rule and describes how and why the Taylor rule became integrated into policy discussions and, in some cases, the policy framework itself. Speeches by policymakers and transcripts and minutes of policy meetings are examined to explore the practical uses of the Taylor rule by central bankers. While many issues remain unresolved and views still differ about how the Taylor rule can best be applied in practice, the paper shows that the rule has advanced the practice of central banking.

Number of Pages in PDF File: 54

Keywords: Taylor rule, monetary policy, rules versus discretion

JEL Classification: B22, B31, E52

working papers series





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Date posted: January 9, 2011  

Suggested Citation

Asso, Pier Francesco and Kahn, George A. and Leeson, Robert, The Taylor Rule and the Practice of Central Banking (February 16, 2010). Available at SSRN: http://ssrn.com/abstract=1553978 or http://dx.doi.org/10.2139/ssrn.1553978

Contact Information

Pier Francesco Asso
University of Palermo ( email )
Viale delle Scienza
Palermo, 90128
Italy
George A. Kahn (Contact Author)
Federal Reserve Bank of Kansas City ( email )
1 Memorial Dr.
Kansas City, MO 64198
United States
816-881-2436 (Phone)
816-881-2199 (Fax)
Robert Leeson
affiliation not provided to SSRN
Feedback to SSRN


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