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Working Paper

Forward-Looking Versus Backward-Looking Taylor Rules

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This paper analyzes the restrictions necessary to ensure that the policy rule used by the central bank does not introduce real indeterminacy into the economy. It conducts this analysis in a flexible price economy and a sticky price model. A robust conclusion is that to ensure determinacy the monetary authority should follow a backward-looking rule where the nominal interest rate responds aggressively to past inflation rates.
08.01.2000ISSN 2573-7953 WP 00-09DOI 10.26509/frbc-wp-200009

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Carlstrom, Charles T., and Timothy S. Fuerst. 2000. “Forward-Looking Versus Backward-Looking Taylor Rules.” Federal Reserve Bank of Cleveland, Working Paper No. 00-09. https://doi.org/10.26509/frbc-wp-200009