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The European Central Bank, The Federal Reserve And The Bank Of England: Is The Taylor Rule An Useful Benchmark For The Last Decade?

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Executive Summary

The Taylor rule has been used in many studies in order to analyse the monetary policies. In this paper the author focuses on the Euro era and compares the ECB with other two central banks, the Fed and the BoE. A very interesting result comes out from the analysis: it seems that these central banks do not observe the inflation course before deciding about the variation of the interest rates. This result can be linked to two ideas: firstly, the use of stationary time series drops out the significance of the inflation gap as regressor; secondly, a really forward looking central bank focuses on other macroeconomic leading indicators instead of examining the realized or expected inflation gap.

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