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Monetary Policy Rules

Empirical Applications Based on Survey Data

Series:

Dirk Bleich

This work provides different studies of how econometric evaluation of monetary policy based on forward-looking Taylor rules is conducted. The first part discusses theoretical results regarding the Taylor principle and can be used as a guideline for the evaluation of the following three empirical applications based on survey data of Consensus Economics. The first application deals with the question whether the introduction of inflation targeting affects monetary policy. The second application investigates the consequences of oil price movements for monetary policy. The third application analyzes monetary policy conditions in Spain before and after the changeover to the Euro by estimating forward-looking Taylor rules.

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Appendix D Calculation of the non-oil CPI

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Since inflation expectations consist of oil price expectations, we use the weights of oil prices in the consumer basket (γ) reported by the respective central bank and shown in Table D.1. Since the weights do not change no- ticeably over time and in order to isolate the effect of oil price expectations from time-varying compositions of the consumer basket we used constant weights. We split the overall inflation expectation Etπt+12 into the unobserv- able non-oil inflation expectations Etπ̂t+12 by means of the observable oil price expectation EtΔoilt+12: (D.1) Etπt+12 = (1− γ) · Etπ̂t+12 + γ · EtΔoilt+12 which can be rearranged to (D.2) Etπ̂t+12 = Etπt+12 − γ · EtΔoilt+12 1− γ where Etπ̂t+12 reflects the unobservable non-oil inflation expectation. Table D.1: Relative weight (γ) of oil in the consumer basket Country Canada UK U.S. Euro-Area Weights (in percent) 2.0 1.8 2.1 1.7 Source: Bank of Canada, Bank of England, Federal Reserve and European Central Bank.

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