This paper evaluates out-of-sample exchange rate predictability of Taylor rule models, where the central bank sets the interest rate in response to inflation and either the output or the unemployment gap, for the euro/dollar exchange rate with real-time data before, during, and after the...

Can U.S. monetary policy in the 1970s be described by a stabilizing Taylor rule with a two percent inflation target when policy is evaluated with real-time inflation and output gap data? If so, it is problematic to use the Taylor rule as a guide to good policy as the Federal Reserve implements...

The conduct of monetary policy is often characterised by either “hawks versus doves” or “rules versus discretion”. We use a metric to evaluate monetary policy rules by calculating quadratic loss ratios, the (inflation plus unemployment) loss in high deviations periods divided by the loss...

Debates about the conduct of monetary policy have evolved over time from “rules versus discretion” to “policy rules versus constrained discretion.” We propose a metric to evaluate monetary policy rules that are consistent with constrained discretion by calculating quadratic loss ratios,...

The Taylor rule has become the dominant model for academic evaluation of out-of-sample exchange rate predictability. Two versions of the Taylor rule model are the Taylor rule fundamentals model, where the variables that enter the Taylor rule are used to forecast exchange rate changes, and the...

Using real-time data that reflects information available to monetary authorities at the time they are formulating policy, we find that estimated Taylor rules based on revised and real-time data differ more for Germany than for the U.S., Taylor rules using real-time data suggest differences...

An extensive literature that studied the performance of empirical exchange rate models following Meese and Rogoff's (1983a) seminal paper has not convincingly found evidence of out-of-sample exchange rate predictability. This paper extends the conventional set of models of exchange rate...

An extensive literature that studied the performance of empirical exchange rate models following Meese and Rogoff's (1983a) seminal paper has not convincingly found evidence of out-of-sample exchange rate predictability. This paper extends the conventional set of models of exchange rate...

We use tests for structural change to identify periods of low, positive, and negative Taylor rule deviations, the difference between the federal funds rate and the rate prescribed by the original Taylor rule. The tests define four monetary policy eras: a negative deviations era during the Great...

The legislated policy rules proposed by the Federal Reserve Accountability and Transparency Act of 2014 and the Financial Regulatory Improvement Act of 2015 have the potential to transform the conduct of monetary policy. If enacted, the Fed would have the obligation to explicitly state a...