18/09/2025  - Doyen 22

Cristina Manea

(Bank for International Settlements) 

will give a presentation on 

Targeted Taylor Rules: Some Evidence and Theory 

Abstract

This paper introduces the concept of targeted Taylor rules defined as monetary policy rules which allow for different responses to demand– versus supply–driven inflation. This new concept tallies with Federal Reserve’s monetary policy strategy as reflected in its official communications. When estimated for the United States using recent decompositions of inflation in demand and supply factors, this new type of rule points to an almost fourfold stronger monetary policy reaction to demand– than to supply–driven inflation starting with Paul Volker’s Chairmanship. We show how to embed the new targeted rule into a textbook New-Keynesian model when the economy is simultaneously hit by demand and supply shocks and discuss its implications for business cycle fluctuations and welfare.

(joint with B Hofmann and B Mojon)