Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/214875 
Year of Publication: 
2020
Series/Report no.: 
BoF Economics Review No. 1/2020
Publisher: 
Bank of Finland, Helsinki
Abstract: 
When the central bank sets monetary policy according to a conventional or modified Taylor rule (which is known as the Taylor Principle), does this deliver the best outcome for the mac-roeconomy as a whole? This question is addressed by extending the wavelet-based control (WBC) model of Crowley and Hudgins (2015) to evaluate macroeconomic performance when the central bank sets interest rates based on a conventional or modified Taylor rule (TR). We compare the simulated performance of jointly optimal fiscal and monetary policy under an unrestricted baseline model with performance under the TR. We simulate the model un-der relatively small and large weighting of the output gap in the TR specification, and for both low and high inflation environments. The results show that the macroeconomic outcome de-pends on whether the conventional or modified Taylor rule is used, and whether the central bank is operating in a low or high inflation environment.
Subjects: 
Discrete Wavelet Analysis
Monetary Policy
Optimal Control
JEL: 
C61
C63
C88
E52
E61
F47
Persistent Identifier of the first edition: 
Document Type: 
Research Report

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.