Do the Monetary Policy Makers Follow Rules? Testing Taylor’s Rule for Nepal

Authors

  • Khagendra Katuwal Central Department of Economics, Tribhuvan University, Kirtipur

DOI:

https://doi.org/10.3126/ejon.v42i1-2.35903

Keywords:

Taylor's Rule, Output gap, Inflation gap, Interest rate, T-bills rate

Abstract

The study estimates Taylor’s rule for Nepal by using the annual time series data for the period of 1988-2018. As a requirement of Taylor's rule, the output gap has been estimated by using Hodric-Perscott filter. Consumer price index has been used as measure of inflation and 91-days treasury bills rate is taken as the proxy for the short-term interest rate set by central bank of Nepal. The ordinary least square method has been used to estimate the Taylor's equation The results show that. As Augmented Dickey-Fuller test shows that all  the variables used in this study are in level form. The results show that there is a positive relationship of T-bills rule with inflation output gap. Interest rate smoothing is found to be a major concern of central bank of Nepal but follows the Taylor’s rule partially.

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Author Biography

Khagendra Katuwal, Central Department of Economics, Tribhuvan University, Kirtipur

Assistant Professor and also a Ph.D. scholar

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Published

2019-06-30

How to Cite

Katuwal, K. (2019). Do the Monetary Policy Makers Follow Rules? Testing Taylor’s Rule for Nepal. Economic Journal of Nepal, 42(1-2), 34–42. https://doi.org/10.3126/ejon.v42i1-2.35903

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Section

Articles