Dissecting Taylor Rules in a Structural VAR
IMF Working Papers, January 1, 2010
Source details
- Canonical URL
- Dissecting Taylor Rules in a Structural VAR
Other formats
Bibliographic details
- Authors: Woon Gyu Choi, Yi Wen
- Published: January 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451962291.001
Summary
- The paper uncovers Taylor rules from estimated monetary policy reactions using a structural VAR on U.S. data from 1959 to 2009.
- These Taylor rules reveal the dynamic nature of policy responses to different structural shocks.
- The authors find that U.S. monetary policy has been far more responsive over time to demand shocks than to supply shocks, and more aggressive toward inflation than output growth.
- The estimated dynamic policy coefficients characterize the style of policy as a "bang-bang" control for the pre-1979 period and as a gradual control for the post-1979 period.
Methodology
- Approach: Structural VAR applied to U.S. data.
- Sample period: 1959 to 2009.
- Key technical elements mentioned: spectral decomposition, structural VAR, dynamic policy coefficients.
- Focus variables and concepts: Taylor rule, central bank policy rate, GDP deflator, inflation, output growth, supply shocks, endogenous monetary policy.
Key Findings and Results
- Monetary policy responsiveness:
- Far more responsive over time to demand shocks than to supply shocks.
- More aggressive toward inflation than output growth.
- Policy style over time:
- Pre-1979: characterized as "bang-bang" control.
- Post-1979: characterized as gradual control.
- Subject areas covered include: Business cycles; Central bank policy rate; Economic growth; Economic theory; Financial services; Inflation; Prices; Production; Production growth; Supply shocks.