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Title:Testing the monetary policy rule in the US: A reconsideration of the Fed's behaviour PDF Logo
Authors:Minford, Patrick
Ou, Zhirong
Issue Date:2009
Series/Report no.:Cardiff Economics Working Papers E2009/19
Abstract:We calibrate a standard New Keynesian model with three alternative representations of monetary policy- an optimal timeless rule, a Taylor rule and another with interest rate smoothing- with the aim of testing which if any can match the data according to the method of indirect inference. We find that the only model version that fails to be strongly rejected is the optimal timeless rule. Furthermore this version can also account for the widespread finding of apparent Taylor rules and interest rate smoothing in the data, even though neither represents the true monetary policy.
Subjects:Monetary policy
Kew Keynesian model
the target rule
Taylor-type rules
Bootstrap simulation
VAR
Indirect inference
Wald statistic
JEL:E12
E17
E42
E52
E58
Document Type:Working Paper
Appears in Collections:Cardiff Economics Working Papers, Cardiff Business School, Cardiff University

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