Description

In this paper we develop an alternative Taylor rule where the level of inertia depends on the gap between the actual and desired interest rates. This rule is estimated for six inflationtargeting countries, namely Chile, Colombia, Mexico, New Zealand, Peru, and South Korea. Evidence of a varying inertia is found for all the tested countries. While for the sample with stable interest rate movements this rule exhibits a fit similar to a classic Taylor rule, it provides a better fit for the post financial crisis sub-sample.