Taylor (1979) posited that a central bank faces a tradeoff between the volatility of the output gap and volatility of inflation; this trade-off has become known as the Taylor curve. Thus, the Taylor curve necessitates that the correlation between the volatilities of inflation and the output gap...

This paper examines the in-sample and out-of-sample properties of linear and nonlinear Taylor rules using real-time US data. We find that: (i) in-sample and out-of-sample performance measures generally select the same functional form for the Taylor rule and that (ii) the form of the Taylor rule...