Explain carefully the rationale for the Taylor rule in monetary policy and discuss the extent to which modern central banks in major countries have been following Taylor rules


Essay, 2002

9 Pages, Grade: 1,7 (A-)


Abstract or Introduction

According to Goodhart’s speech in 1998, the key decision that the monetary authorities take each month is whether, and by how much, to alter the shortterm interest rate. As central banks vary interest rates in response to economic development the crucial question has become how they should adjust it in order to achieve, or to come as close as possible to, the social welfare optimum. The vital importance of this decision for the financial community and therefore the economies in general could be observed in the public discussion which frequently occurs about how the Fed and the ECB should react by changing the short term interest rates.
A popular way of explaining the way central banks take its interest rate decisions has been proposed by Taylor in 1993. He basically suggested a rule, which he derived from observation of former successful monetary policy. This essay shows how the Taylor rule works and to which extent major central banks have been following the rule.

Details

Title
Explain carefully the rationale for the Taylor rule in monetary policy and discuss the extent to which modern central banks in major countries have been following Taylor rules
College
University of St Andrews  (Department of Economics)
Course
Monetary Policy
Grade
1,7 (A-)
Author
Year
2002
Pages
9
Catalog Number
V10100
ISBN (eBook)
9783638166331
File size
496 KB
Language
English
Keywords
Taylor Rule Zentralbank Zins
Quote paper
Dipl. Kfm. Kristian Kanthak (Author), 2002, Explain carefully the rationale for the Taylor rule in monetary policy and discuss the extent to which modern central banks in major countries have been following Taylor rules, Munich, GRIN Verlag, https://www.grin.com/document/10100

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