Comment on Identification with Taylor Rules: is it indeed impossible? Extended version

Abstract

Cochrane (2007) points out that the Taylor rule parameters in New-Keynesian models are not identified, and thus trying to estimate them through single-equation regressions is pointless. This paper shows in contrast that this observation holds only for economies that do not display inflation inertia or habit formation. These inherent features of aggregate data allow to correctly identify the parameters of the monetary policy rule by single-equation analysis.monetary economics ;