Taylor Rules Under the Risk-Management Paradigm of Discretionary Monetary Policy

15 Pages Posted: 9 Nov 2005

See all articles by Vineer Bhansali

Vineer Bhansali

LongTail Alpha, LLC

Mark B. Wise

California Institute of Technology

Abstract

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

Bhansali, Vineer and Wise, Mark B., Taylor Rules Under the Risk-Management Paradigm of Discretionary Monetary Policy. Available at SSRN: https://ssrn.com/abstract=840205 or http://dx.doi.org/10.2139/ssrn.840205

Vineer Bhansali

LongTail Alpha, LLC ( email )

500 Newport Center Drive
Suite 820
Newport Beach, CA 92660
United States

Mark B. Wise (Contact Author)

California Institute of Technology ( email )

Pasadena, CA 91125
United States
626-395-6687 (Phone)
626-568-8473 (Fax)

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