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The Relevance of International Spillovers and Asymmetric Effects in the Taylor Rule. CEPS Working Document No. 403, February 2015

Ansgar Belke, Ansgar Belke and Joscha Beckmann, Joscha Beckmann and Christian Dreger, Christian Dreger (2015) The Relevance of International Spillovers and Asymmetric Effects in the Taylor Rule. CEPS Working Document No. 403, February 2015. [Working Paper]

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    Abstract

    Deviations of policy interest rates from the levels implied by the Taylor rule have been persistent before the financial crisis and increased especially after the turn of the century. Compared to the Taylor benchmark, policy rates were often too low. This paper provides evidence that both international spillovers, for instance international dependencies in the interest rate-setting of central banks, and nonlinear reaction patterns can offer a more realistic specification of the Taylor rule in the main industrial countries. The inclusion of international spillovers and, even more, nonlinear dynamics improves the explanatory power of standard Taylor reaction functions. Deviations from Taylor rates tend to be smaller and their negative trend can be eliminated.

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    Item Type: Working Paper
    Uncontrolled Keywords: Taylor rule, international spillovers, monetary policy interaction, smooth transition models
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > economic and financial affairs > economic policy
    EU policies and themes > Policies & related activities > economic and financial affairs > financial crisis 2008-on/reforms/economic governance
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > CEPS Working Documents
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 11 Feb 2015 14:53
    Number of Pages: 19
    Last Modified: 11 Feb 2015 14:53
    URI: http://aei.pitt.edu/id/eprint/61271

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