Estimating Taylor-Type Rules: An Unbalanced Regression?
Pierre L. Siklos
Wilfrid Laurier University - School of Business & Economics
Mark E. Wohar
University of Nebraska at Omaha
Relying on Clive Granger's many and varied contributions to econometric analysis, this paper considers some of the key econometric considerations involved in estimating Taylor type rules for US data. We focus on the roles of unit roots, cointegration, structural breaks, and non-linearities to make the case that most existing estimates are based on an unbalanced regression. A variety of estimates reveal that neglected cointegration results in the omission of a necessary error correction term and that Fed reactions during the Greenspan era appear to have been asymmetric. We argue that error correction and non-linearities may be one way to estimate Taylor rules over long samples when the underlying policy regime may have changed significantly.
Number of Pages in PDF File: 56
Keywords: Taylor rules, stationarity, cointegration
JEL Classification: E52, E58, C32, C61working papers series
Date posted: November 19, 2004
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