- "When the economic situation is normal, central banks use interest rate rules similar to Taylor Rules (the central bank’s intervention rate depends on inflation and the capacity utilisation rate). However, when the economy is depressed and inflation is low, Taylor Rules can no longer be used since they would lead to negative nominal short-term interest rates. Central banks then have to implement unconventional policies: purchases of bonds in order to drive down long-term interest rates, Quantitative Easing (monetary base target), changeover to an exchange rate target, an objective of liquidity in financial markets — all these policies have been used since 2008."
- "We wonder whether economic conditions will enable, in the future, renewed utilisation
of Taylor Rules, or whether central banks will have to continue using unconventional
policies. If we forecast key intervention rates of central banks by drawing on econometrically
estimated Taylor Rules, we find that only the United States should currently maintain
unconventional policies (until mid-2011)."
- "The euro zone and the United Kingdom ought to renew with conventional policies in 2010. However, this approach does not take into account further developments of the crisis (banking risk, sovereign debt crisis) which would force central banks to continue conducting unconventional policies even though the Taylor Rule would lead to a positive interest rate."
Natixis Flash Economics 352 20100706
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