More often, persistent fluctuations in the real exchange rate tends to have significant adverse impact on prices, output and inflation expectations in an economy. Therefore, the ability to predict its movement over time with relative degree of accuracy is imperative for effective monetary policy...

Many critics of the Taylor rule claim that it is inferior to inflation forecast based (IFB) rules because it is not forward-looking, is not aggressive enough, and because of uncertainty surrounding the output gap. Nevertheless, the Taylor rule serves a constructive purpose because it abstracts...

Many researchers have found that the lagged interest rate enters estimated monetary policy rules with overwhelming significance. However, a recent paper by Rudebusch (2002) argues that the lagged interest rate is not a fundamental component of the U.S. policy rule, and that its significance...

The changing and unpredictable nature of the money demand function has led many Central Banks authorities around the world to shift from exchange rate and monetary policy targeting to inflation targeting framework. The gradual shift to inflation targeting has reawakened interest in the Taylor's...

In this paper, we derive a modification of a forward-looking Taylor rule, which integrates two variables measuring the uncertainty of inflation and GDP growth forecasts into an otherwise standard New Keynesian model. We show that certainty-equivalence in New Keynesian models is a consequence of...

The size of the output gap coefficient is the key determinant of whether quantitative easing since 2009 and continued near-zero interest rates can by justified by a Taylor rule. Fed Chair Ben Bernanke and Vice-Chair Janet Yellen have argued that John Taylor proposed a monetary policy rule with a...

This paper re-examines the use of estimated Taylor rule equations as a standard long run description of Federal Reserve policy. The empirical results suggest that until 1979 Fed policy changed the real funds rate in response to the output gap, with no response to an inflation target. During the...

This paper shows that the Fed reacts to change in spreads between corporate bond yields and government bond yields over and beyond their information content on future inflation and future activity. This result, obtained in a GMM framework, is confirmed by simulation methods. Moreover, when...

In a simple New Keynesian model, we derive a closed form solution for the inflation-gap persistence parameter as a function of the policy weights in the central bank's Taylor rule. By estimating the time-varying weights that the FED attaches to inflation and the output gap, we show that the...

In this paper we construct a new monetary policy indicator (MPI) for Jamaica. Further to the construction of this indicator, two variants of augmented VAR are estimated. These are the structural VAR and a variant of the fusion between VAR and the analytical narrative-approach (ANA); forming the...