Nowcasting and the Taylor Rule
Actual federal funds rates in the U.S. have, at times, deviated from the recommendations of a simple Taylor rule. This paper proposes a “nowcasting” Taylor rule that preserves the form of the Taylor rule but encompasses realistic assumptions on information observable to policymakers. Because contemporaneous inflation rates and output gaps are not observable at the time policy is set, policymakers must form “nowcasts.” The optimal nowcast will depend, in part, on forecast uncertainty whenever policymakers have asymmetric costs to over‐ and underpredicting inflation and output. Empirical evidence shows that actual policy rates are consistent with those recommended by a nowcasting Taylor rule.
Year of publication: |
2014
|
---|---|
Authors: | BRANCH, WILLIAM A. |
Published in: |
Journal of Money, Credit and Banking. - Blackwell Publishing. - Vol. 46.2014, 5, p. 1035-1055
|
Publisher: |
Blackwell Publishing |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Endogenously (non-)Ricardian beliefs
Branch, William A., (2019)
-
Branch, William A., (2022)
-
Learning about risk and return : a simple model of bubbles and crashes
Branch, William A., (2008)
- More ...