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Has U.S. monetary policy tracked the efficient interest rate?
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Has U.S. monetary policy tracked the efficient interest rate?

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  • Cúrdia, Vasco
  • Ferrero, Andrea
  • Ng, Ging Cee
  • Tambalotti, Andrea

Abstract

Interest rate decisions by central banks are universally discussed in terms of Taylor rules, which describe policy rates as responding to inflation and some measure of the output gap. We show that an alternative specification of monetary policy, in which the interest rate tracks the Wicksellian efficient rate of return as the primary indicator of real activity, fits the U.S. data better than otherwise identical Taylor rules. This result holds for a variety of specifications of the other ingredients of the policy rule, including the output gap, and of private agents׳ behavior.

Suggested Citation

  • Cúrdia, Vasco & Ferrero, Andrea & Ng, Ging Cee & Tambalotti, Andrea, 2015. "Has U.S. monetary policy tracked the efficient interest rate?," Journal of Monetary Economics, Elsevier, vol. 70(C), pages 72-83.
    • Handle: RePEc:eee:moneco:v:70:y:2015:i:c:p:72-83
    DOI: 10.1016/j.jmoneco.2014.09.004
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    More about this item

    Keywords

    U.S. monetary policy; Interest rate rules; DSGE models; Bayesian model comparison;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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