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<p>Probably not. A Taylor Rule remains the consensus in macro-models despite unconventional monetary policies (UMP) and zero funds rate in 2009–2015. Using three benchmark models—a vector autoregression, a small-scale New Keynesian model, and a medium-scale DSGE model—we test for structural breaks between the Great Moderation and post-crisis periods. Structural breaks occurred at 2007:Q3 in the Taylor Rule (less "hawkish" than the Great Moderation) and many non-policy structural parameters, which exhibit significant time variation. We examine whether these breaks reflect omitted UMP effects by comparing results using the federal funds rate (with a zero-lower-bound constraint) and Wu-Xia shadow rate. Surprisingly, model estimation and projection is qualitatively similar using either rate, but dynamic properties are inconsistent across models. This suggests either that structural breaks are not due to UMP or that the shadow rate is an ineffective UMP proxy. Explicit specification of UMP structure in macro-models is likely necessary.</p>

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From Conventional to Unconventional Monetary Policy: Is the Taylor Rule an Adequate Representation in Macro Models?

  • 期刊论文

  • 发表日期：

    2026年2月4日

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  • James Dean,
  • Scott Schuh

摘要

Probably not. A Taylor Rule remains the consensus in macro-models despite unconventional monetary policies (UMP) and zero funds rate in 2009–2015. Using three benchmark models—a vector autoregression, a small-scale New Keynesian model, and a medium-scale DSGE model—we test for structural breaks between the Great Moderation and post-crisis periods. Structural breaks occurred at 2007:Q3 in the Taylor Rule (less "hawkish" than the Great Moderation) and many non-policy structural parameters, which exhibit significant time variation. We examine whether these breaks reflect omitted UMP effects by comparing results using the federal funds rate (with a zero-lower-bound constraint) and Wu-Xia shadow rate. Surprisingly, model estimation and projection is qualitatively similar using either rate, but dynamic properties are inconsistent across models. This suggests either that structural breaks are not due to UMP or that the shadow rate is an ineffective UMP proxy. Explicit specification of UMP structure in macro-models is likely necessary.