Empirical Applications Based on Survey Data
Chapter 1 Introduction
As Taylor and Williams (2010) express, economist have been interested in monetary policy rules since the advent of economics. Adam Smith already suggested in the Wealth of Nations that a "well-regulated paper-money" is superior to a pure commodity standard in terms of fostering economic growth and stability. Other classical economists such as Henry Thornton and David Ricardo speciﬁed Smith’s idea by stressing the importance of a rule-based monetary policy to avoid ﬁnancial crises. Irving Fisher’s quantity theory of money and Knut Wicksel’s interest theory of the early 20th century can be considered as further cornerstones. In the 1960s, Milton Friedman revived the quantity theory of money and suggested his constant growth rate rule. Finally, Taylor (1993) introduced a monetary policy rule, which relates the short-term interest rate to deviations of inﬂation and output from their respective target levels. This rule became generally known as the Taylor rule. Since the seminal work of Taylor (1993), diﬀerent variants of Taylor rules – often labeled Taylor type rules – have been developed. In particular, Clarida et al. (1998) proposed a speciﬁc forward-looking variant of the Taylor rule which takes into account account the pre-emptive nature of monetary policy as well as interest smoothing behavior of central banks. This type of reaction function has become very popular in applied research and also will be in the center of this thesis. For evaluation of monetary policy the resulting reaction coeﬃcient for the inﬂation rate is of particular interest. If the central...
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