1. THE MONETARY POLICY OF FED AND ECB. A COMPARATIVE STUDY THROUGH TAYLOR RULE.Iannace InnocenzoLanzillo Giorgio 1

2. “Discretion versus policy rules in pratice” J.B. Taylor, 1993 The ruleproposeddescribedsurprisinglywell the trend ofFederalFunds – Rate over the period 1987 - 1993 2

3. The Taylor rule is a linear function, in which the interest rate is the dependent variable, while the inflation gap and output gap are the regressors 3

4. TAYLOR RULE 4

5. RESEARCH AIMS: Does Taylor Ruledescribeaccurately the interest rate management? Are centralbankersconsistentachieving the centralbanksconstitutiongoals? 5

6. 6 Does Taylor Ruledescribeaccurately the interest rate management?

7. FEDERAL FUNDS RATE 7

8. - Kydland e Prescott “Rules Rather than Discretion – The Inconsistency of Optimal Plans”- 1977 - Consistency, credibility, private sector involvement 8

9. - Timeinconstintency- Needof accurate rules 9

10. Taylor ruleweaknesses - Extreme sensitivity of T.R. - Real-time availability of accurate data that reflect the real state of the economy- Real time measurement of output gap is considered difficult (Orphanides, 1999) 10

11. EMPIRICAL ANALYSISEstimationofreactionfunction 11

12. 12 Are centralbankersconsistentachieving the centralbanksconstitutiongoals?

14. ECB: […] “The primaryobjectiveof the European System ofCentralBanksshallbetomantain price stability […]”13

15. Taylor rule 14

16. FEDERAL RESERVE BANK DATA SET Quarterly data 1980 – 2008 Interest rate data: Dallas Fed statisticalwarehouse Inflation and deflated GDP data: OECD statisticalwarehouse 15

17. 16

18. Coefficientsestimation 17

19. Actual, fitted, residualobservations 18

21. GDP: ECB statisticalarchives

22. Interest rate and inflation rate: OECD statisticalwarehouse19

23. 20

24. Coefficientsestimation 21

25. Actual, fitted, residualobservations 22

26. OUTCOMES 23