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How different are money supply rules from Taylor rules?

By Anthony Patrick Leslie Minford, Francesco Perugini and Naveen Srinivasan

Abstract

In this paper we show that a money supply rule (a Taylor-type rule) and a Taylor rule produce substantial stochastic differences in the behaviour of the economy. Hence it remains an open question whether one or other type of central bank behaviour does a better job in welfare terms - contrary to a recent study (Clarida et al. 1999) which called Taylor rules the modern 'science of monetary policy', thereby suggesting that other rules are essentially inferior. We show with illustrative calibration that the rules may produce very different welfare outcomes

Topics: H1, HB
Publisher: Department of Economics, Delhi School of Economics, University of Delhi
Year: 2003
OAI identifier: oai:http://orca.cf.ac.uk:40041
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