Meta taylor rules for the UK and Australia; Accommodating regime uncertainty in monetary policy analysis using model averaging methods

Abstract

This paper provides a characterization of UK and Australian monetary policy within a Taylor rule framework, accommodating uncertainties about the nature and duration of policy regimes in a flexible but easy-to-implement analysis. Our approach involves estimation and inference based on a set of Taylor rules obtained through linear regression methods, but combined into a 'meta' rule using model averaging techniques. Using data that were available in real time, the estimated version of the meta Taylor rule provides a useful and detailed characterization of monetary policies in the UK and Australia over the last 30 years. © 2013 The University of Manchester and John Wiley & Sons Ltd.