Identifying Taylor Rules in Macro-Finance Models

27 Pages Posted: 28 Aug 2013

See all articles by David K. Backus

David K. Backus

NYU Stern School of Business; National Bureau of Economic Research (NBER)

Mikhail Chernov

UCLA Anderson

Stanley E. Zin

Leonard N. Stern School of Business - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: August 2013

Abstract

Identi fication problems arise naturally in forward-looking models when agents observe more than economists. We illustrate the problem in several macro- finance models with Taylor rules. When the shock to the rule is observed by agents but not economists, identifi cation of the rule's parameters requires restrictions on the form of the shock. We show how such restrictions work when we observe the state directly, indirectly, or infer it from observables.

Keywords: forward-looking models; information sets;, monetary policy; exponential-affine models

Suggested Citation

Backus, David K. and Chernov, Mikhail and Zin, Stanley E., Identifying Taylor Rules in Macro-Finance Models (August 2013). NYU Working Paper No. 2451/31978. Available at SSRN: https://ssrn.com/abstract=2317127

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Mikhail Chernov

UCLA Anderson ( email )

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Stanley E. Zin

Leonard N. Stern School of Business - Department of Economics ( email )

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