Identification With Taylor Rules: A Critical Review

Cochrane, John H.

doi:10.2139/ssrn.1012187

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Identification With Taylor Rules: A Critical Review

43 Pages Posted: 12 Sep 2007

See all articles by John H. Cochrane

John H. Cochrane

Hoover Institution; National Bureau of Economic Research (NBER)

Date Written: September 4, 2007

Abstract

The parameters of the Taylor rule relating interest rates to inflation and other variables are not identified in new-Keynesian models. Thus, Taylor rule regressions cannot be used to argue that the Fed conquered inflation by moving from a passive to an active policy in the early 1980s.

Keywords: Taylor rule, interest rate, inflation, identification

JEL Classification: E31, E42, E52, C32

Suggested Citation: Suggested Citation

Cochrane, John H., Identification With Taylor Rules: A Critical Review (September 4, 2007). Available at SSRN: https://ssrn.com/abstract=1012187 or http://dx.doi.org/10.2139/ssrn.1012187