NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Identifying Taylor Rules in Macro-Finance Models

David Backus, Mikhail Chernov, Stanley E. Zin

NBER Working Paper No. 19360
Issued in August 2013
NBER Program(s):   AP   EFG

Identification problems arise naturally in forward-looking models when agents observe more than economists. We illustrate the problem in several macro-finance models with Taylor rules. When the shock to the rule is observed by agents but not economists, identification of the rule's parameters requires restrictions on the form of the shock. We show how such restrictions work when we observe the state directly, indirectly, or infer it from observables.

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Document Object Identifier (DOI): 10.3386/w19360

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