In order to address this issue, two specifications for the Taylor rule are estimated for 11 economies.5 Given the availability of data, the sample period for this analysis is from January 2000 to February 2015.6 First, a traditional Taylor rule is estimated for these economies.
In this specification the central bank reacts to deviations of the output from its potential level (output gap) and inflation from its target level (inflation gap) when setting the policy rate: ∗  =  +  ∗  +  (  −  ∗  ( − )+  )+  represents the policy rate, ∗ the neutral real interest rate (an interest rate Where the consistent with the inflation rate being at its target and an output gap equal to zero), ∗ the inflation target and the output gap.