Taylor rule estimation by OLS

• 成果类型: Article
• 署名作者: Carvalho, Carlos; Nechio, Fernanda; Tristao, Tiago
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - San Francisco
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2021.10.010
• 发表日期: 2021
• 页码: 140-154
• 关键词: Taylor rule; OLS; gmm; Endogeneity bias; weak instruments; New Keynesian models

摘要

We argue for Ordinary Least Squares (OLS) estimation of Taylor rules despite an endogeneity bias. To that end, we show analytically in the three-equation New Keynesian model that the OLS bias is proportional to the fraction of the variance of regressors due to monetary shocks. Using simulations, we show this relationship also holds in a quantitative model of the U.S. economy. Since monetary shocks explain only a small fraction of the variance of typical Taylor rule regressors, the bias tends to be small. Estimating a standard Taylor rule using U.S. data, we find quite similar OLS and Instrumental Variables estimates. (C) 2021 Elsevier B.V. All rights reserved.