Taylor Rule Fails as Reliable Monetary Policy Indicator, Caution Urged.
The Taylor Rule, a popular method for setting interest rates, may not be reliable for predicting monetary policy in the US, Australia, and Sweden. Tests show that the variables used in the rule are not well-suited for consistent estimation, casting doubt on its accuracy. The data suggests that the Taylor Rule may not be a good description of how central banks actually conduct monetary policy in these countries.