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Meta Taylor Rules for the UK and Australia; Accommodating Regime Uncertainty in Monetary Policy Analysis Using Model Averaging Methods

Authors

  • Kevin Lee,

    1. University of Nottingham
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  • Nilss Olekalns,

    1. University of Melbourne
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  • Kalvinder Shields

    1. University of Melbourne
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    • We are grateful to Zheng Wang for valuable research assistance and for comments received from two referees and participants at the ‘Structural Breaks and Monetary Policy’ workshop at the University of Manchester, September 2011. Financial support from the Australian Research Council (ARC) (Discovery Grant DP0988112) is gratefully acknowledged.

Abstract

This paper provides a characterization of UK and Australian monetary policy within a Taylor rule framework, accommodating uncertainties about the nature and duration of policy regimes in a flexible but easy-to-implement analysis. Our approach involves estimation and inference based on a set of Taylor rules obtained through linear regression methods, but combined into a ‘meta’ rule using model averaging techniques. Using data that were available in real time, the estimated version of the meta Taylor rule provides a useful and detailed characterization of monetary policies in the UK and Australia over the last 30 years.

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