Understanding the deviations of the Taylor rule : a new methodology with an application to Australia

摘要

This investigation aims to explain and quantify the deviations of the Taylor Rule. A noveludthree-step econometric procedure designed to reflect the data-rich environment in whichudcentral banks operate is proposed using information for 229 macroeconomic series. Thisudprocedure can be applied to data for any economy with inflation targeting monetary rule. Ourudapplication with Australian data shows that approximately 65% of Australia‘s deviation fromudthe Taylor Rule can be explained systematically, with international factors and a domesticudfactor accounting for 41.9% and 22.5% respectively of the total variation in deviation fromudthe rule. Australian deviation from the Taylor Rule is also associated with the deviation of theudUS´s Taylor Rule, indicating that the Reserve Bank of Australia appears to be following anudinternational monetary policy trend set forth by the world‘s largest economy.