Working Paper: CEPR ID: DP7555
Authors: Henrik Jensen
Abstract: No. I demonstrate that econometric estimations of nominal interest rate rules may tell little, if anything, about an economy's determinacy properties. In particular, correct inference about the interest-rate response to inflation provides no information about determinacy. Instead, it could reveal whether optimal monetary policymaking is performed under discretion or commitment.
Keywords: equilibrium determinacy; estimated Taylor rules; interest rate rules; monetary policy; rules vs discretion
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stochastic simulations of a simple New-Keynesian model (C54) | illustrate claims (Y90) |
| econometric estimations of nominal interest rate rules (E43) | insights into an economy's determinacy properties (E19) |
| correct inference about the interest rate response to inflation (E43) | determinacy (D81) |
| passive Taylor rule (E43) | indeterminacy (D89) |
| optimizing framework (C61) | determinacy (D81) |
| estimated coefficients from interest rate rules (E43) | misleadingly imply indeterminacy (D80) |
| nominal interest rate and inflation expectations (E43) | correlation (C10) |