Taylor-Type Rules And Permanent Shifts In Productivity Growth

William T. Gavin, Michael R. Pakko, Benjamin D. Keen
2009 ECMS 2009 Proceedings edited by J. Otamendi, A. Bargiela, J. L. Montes, L. M. Doncel Pedrera  
This paper uses simulation techniques to evaluate variants of the Taylor rule in a model where the underlying trend rate of growth is subject to permanent shifts. We show that the original Taylor rule is not particularly well-formulated for dealing with this type of environment. However, we also find that a Taylor-type rule in which the output gap is replaced by output growth or one that is augmented by an explicit policy response to deviations of the price level from a target path will look
more » ... t path will look much like the optimal policy.
doi:10.7148/2009-0457-0462 dblp:conf/ecms/GavinKP09 fatcat:g6zhjeyn6jhrnkm4qjwv3zejwi