I had smoothing in mine (0.7), would be crazy without it.
I cannot remember who tweeted it but someone quipped that the “true” measure of underlying inflation is wage growth. Which actually would be somewhat reasonable if you plug in WPI - 1 as your inflation series.
Plug the Survey of Professional Forecasters into the Taylor rule and you get Fed funds at 8.6% for Q4 22.
Seems high!
That assumes u*=4, with interest rate smoothing parameter set to zero.
I had smoothing in mine (0.7), would be crazy without it.
I cannot remember who tweeted it but someone quipped that the “true” measure of underlying inflation is wage growth. Which actually would be somewhat reasonable if you plug in WPI - 1 as your inflation series.
rho=0.7 gets you down to 4.1% on Fed funds for Q4 22. What we really need is a model for rho!