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      A survey on time-varying parameter taylor rule : a model modified with interest rate pass-through

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      Author
      Yüksel, E.
      Metin-Ozcan, K.
      Hatipoglu, O.
      Date
      2013
      Journal Title
      Economic Systems
      ISSN
      0939-3625 (print)
       
      1878-5433 (online)
       
      Volume
      37
      Issue
      1
      Pages
      122 - 134
      Language
      English
      Type
      Article
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      Please cite this item using this persistent URL
      http://hdl.handle.net/11693/21050
      Abstract
      Today, the prime aim of central banking is to achieve price stability and, to a lesser extent, output stability. To this end, central banks use various monetary policy rules. This paper intends to provide a broad survey of the literature on Taylor-type monetary policy rules with a time-varying parameter (TVP) specification. To include the TVP feature, some modification is made in the monetary transmission mechanism of Taylor-type monetary policy models to account for the changing risk preference of individuals. In line with this approach, we introduce an interest rate pass-through specification of the monetary transmission process in a general equilibrium model to account for the varying perceptions of risk by individuals. We include an application for Turkey and estimate the time-variable parameters of the model by employing a structural extended Kalman filter (EKF). The results indicate that the EKF performs better than the standard Kalman filter in estimating the reaction function of the central bank.
      Published as
      http://dx.doi.org/10.1016/j.ecosys.2012.08.002
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