Real-Time Historical Analysis of Monetary Policy Rules

19 Pages Posted: 18 Jul 2013 Last revised: 3 Oct 2015

See all articles by Alex Nikolsko‐Rzhevskyy

Alex Nikolsko‐Rzhevskyy

Lehigh University - Business School

David H. Papell

University of Houston - Department of Economics

Date Written: February 15, 2015


The size of the output gap coefficient is the key determinant of whether quantitative easing since 2009 and continued near-zero interest rates can by justified by a Taylor rule. Fed Chair Ben Bernanke and Vice-Chair Janet Yellen have argued that John Taylor proposed a monetary policy rule with a larger output gap coefficient in his 1999 paper than in his 1993 paper, and have used this argument to justify negative prescribed interest rates in 2009-2010 and near-zero interest rates through 2015. While Taylor neither proposed nor advocated a different rule in 1999 than in 1993, he did not draw a distinction between the implications of the two rules. In accord with common practice at the time, Taylor used revised data. We show that, using real-time data available to policymakers (although not to Taylor when he wrote the paper), there is a sharp difference in the implications of rules with a smaller and a larger output gap coefficient. If John Taylor had been able to use real-time data in his 1999 paper, the importance of the distinction between Taylor’s original rule with a smaller output gap coefficient and other rules with a larger coefficient would have been evident much earlier.

Keywords: Taylor rule, output gap coefficient, real-time data, policy rules

JEL Classification: E52, E58

Suggested Citation

Nikolsko-Rzhevskyy, Alex and Papell, David H., Real-Time Historical Analysis of Monetary Policy Rules (February 15, 2015). Available at SSRN: or

Alex Nikolsko-Rzhevskyy (Contact Author)

Lehigh University - Business School ( email )

621 Taylor Street
Bethlehem, PA 18015
United States


David H. Papell

University of Houston - Department of Economics ( email )

Houston, TX 77204-5882
United States

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