Reassessing Taylor Rules Using Improved Housing Rent Data

30 Pages Posted: 26 Sep 2015 Last revised: 5 May 2018

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University

N. Edward Coulson

Pennsylvania State University, College of the Liberal Arts - Department of Economic; National Bureau of Economic Research (NBER)

Jiro Yoshida

Pennsylvania State University - Smeal College of Business; The University of Tokyo - Graduate School of Economics

Date Written: March 11, 2018

Abstract

There is a debate whether the federal funds rate deviated from the Taylor rule. We present evidence that standard inflation measures do not reflect the contemporaneous state of housing rents, which is a large part of consumption. Using a new housing rent index (RRI) developed by Ambrose et al. (2015), we compute the RRI-based Taylor rule for the period from 2000 to 2010. The modified Taylor rule indicates that seemingly large deviations are better understood as delays due to the stale information regarding housing rents. It also provides a justification for Quantitative Easing and a better alternative to other versions of Taylor rules.

Keywords: monetary policy, federal funds rate, Taylor rule, Personal Consumption Expenditures, inflation measures, housing rent

JEL Classification: E52, R31, C43, C82

Suggested Citation

Ambrose, Brent W. and Coulson, N. Edward and Yoshida, Jiro, Reassessing Taylor Rules Using Improved Housing Rent Data (March 11, 2018). Journal of Macroeconomics 56, 243-257, June 2018. Available at SSRN: https://ssrn.com/abstract=2665139 or http://dx.doi.org/10.2139/ssrn.2665139

Brent W. Ambrose

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

N. Edward Coulson

Pennsylvania State University, College of the Liberal Arts - Department of Economic ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States
814-863-0625 (Phone)
814-863-4775 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jiro Yoshida (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

368 Business Building
Smeal College of Business
University Park, PA 16802
United States
814-865-0392 (Phone)
814-865-6284 (Fax)

HOME PAGE: http://www.personal.psu.edu/juy18

The University of Tokyo - Graduate School of Economics ( email )

7-3-1 Hongo
Bunkyo-ku, Tokyo 113-0033
Japan
813-5841-5653 (Phone)
813-5841-5521 (Fax)

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