Iannace lanzillo presentation 6 7-20 xi

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Iannace lanzillo presentation 6 7-20 xi

  1. 1. THE MONETARY POLICY OF FED AND ECB. A COMPARATIVE STUDY THROUGH TAYLOR RULE.Iannace InnocenzoLanzillo Giorgio<br />1<br />
  2. 2. “Discretion versus policy rules in pratice” J.B. Taylor, 1993<br />The ruleproposeddescribedsurprisinglywell the trend ofFederalFunds – Rate over the period 1987 - 1993<br />2<br />
  3. 3. The Taylor rule is a linear function, in which the interest rate is the dependent variable, while the inflation gap and output gap are the regressors<br />3<br />
  4. 4. TAYLOR RULE<br />4<br />
  5. 5. RESEARCH AIMS:<br />Does Taylor Ruledescribeaccurately the interest rate management?<br />Are centralbankersconsistentachieving the centralbanksconstitutiongoals? <br />5<br />
  6. 6. 6<br />Does Taylor Ruledescribeaccurately the interest rate management?<br />
  7. 7. FEDERAL FUNDS RATE<br />7<br />
  8. 8. - Kydland e Prescott “Rules Rather than Discretion – The Inconsistency of Optimal Plans”- 1977 - Consistency, credibility, private sector involvement <br />8<br />
  9. 9. - Timeinconstintency- Needof accurate rules<br />9<br />
  10. 10. Taylor ruleweaknesses<br /> - Extreme sensitivity of T.R. - Real-time availability of accurate data that reflect the real state of the economy- Real time measurement of output gap is considered difficult (Orphanides, 1999)<br />10<br />
  11. 11. EMPIRICAL ANALYSISEstimationofreactionfunction<br />11<br />
  12. 12. 12<br />Are centralbankersconsistentachieving the centralbanksconstitutiongoals? <br />
  13. 13. GOALS:<br /><ul><li>FED : “The BoardofGovernorsof the FederalReserve System […] shallpromoteeffectively the goalsofmaximumemployment, stableprices, and moderate long-term interest rates […]”
  14. 14. ECB: […] “The primaryobjectiveof the European System ofCentralBanksshallbetomantain price stability […]”</li></ul>13<br />
  15. 15. Taylor rule<br />14<br />
  16. 16. FEDERAL RESERVE BANK DATA SET<br />Quarterly data 1980 – 2008<br />Interest rate data: Dallas Fed statisticalwarehouse<br />Inflation and deflated GDP data: OECD statisticalwarehouse<br />15<br />
  17. 17. 16<br />
  18. 18. Coefficientsestimation<br />17<br />
  19. 19. Actual, fitted, residualobservations<br />18<br />
  20. 20. ECB DATA SET<br /><ul><li>Quarterly data: 1997 – 2007
  21. 21. GDP: ECB statisticalarchives
  22. 22. Interest rate and inflation rate: OECD statisticalwarehouse</li></ul>19<br />
  23. 23. 20<br />
  24. 24. Coefficientsestimation<br />21<br />
  25. 25. Actual, fitted, residualobservations<br />22<br />
  26. 26. OUTCOMES<br />23<br />

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