A survey on time-varying parameter taylor rule: A model modified with interest rate pass-through

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YÜKSEL HALİLOĞLU E., Metin-Ozcan K., Hatipoglu O.

Economic Systems, cilt.37, sa.1, ss.122-134, 2013 (SSCI) identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 37 Sayı: 1
  • Basım Tarihi: 2013
  • Doi Numarası: 10.1016/j.ecosys.2012.08.002
  • Dergi Adı: Economic Systems
  • Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus
  • Sayfa Sayıları: ss.122-134
  • Anahtar Kelimeler: Extended Kalman filter (EKF), Interest rate pass-through, Monetary policy, Taylor rule, Time-varying parameter (TVP)
  • Gazi Üniversitesi Adresli: Hayır

Özet

Today, the prime aim of central banking is to achieve price stability and, to a lesser extent, output stability. To this end, central banks use various monetary policy rules. This paper intends to provide a broad survey of the literature on Taylor-type monetary policy rules with a time-varying parameter (TVP) specification. To include the TVP feature, some modification is made in the monetary transmission mechanism of Taylor-type monetary policy models to account for the changing risk preference of individuals. In line with this approach, we introduce an interest rate pass-through specification of the monetary transmission process in a general equilibrium model to account for the varying perceptions of risk by individuals. We include an application for Turkey and estimate the time-variable parameters of the model by employing a structural extended Kalman filter (EKF). The results indicate that the EKF performs better than the standard Kalman filter in estimating the reaction function of the central bank. © 2012 Elsevier B.V.