Taylor Rules Under the Risk-Management Paradigm of Discretionary Monetary Policy
15 Pages Posted: 9 Nov 2005
We discuss the Taylor rule near low inflation and interest rates. Using an additional option like term in the loss function, our approach extends the simple Taylor rule to one with an asymmetric response near very low inflation rates.
Once calibrated, this payoff profile gives an exact, and easily communicable prescription for Fed policy under regimes of low inflation.
Keywords: Taylor Rules, Monetary Policy, Low Inflation, Risk Management
JEL Classification: E52, E58
Suggested Citation: Suggested Citation