Does McCallum’s rule outperform Taylor’s rule during the financial crisis?

Abstract

This paper makes an empirical comparison of two simple monetary policy rules, the McCallum rule and the Taylor rule and uses them to assess the monetary policy stance of the ECB during the financial crisis. After the Taylor rule, the McCallum rule ranks among the most widely analysed nominal feedback rules used for policy simulations. The retrospective evidence for the euro area suggests that these simple rules might have provided useful information about the policy stance of the ECB. While we find that for most of that period both rules were fairly close to actual policy, we find no support for McCallum (2000)’s claim on the superiority of his rule over the Taylor rule especially in an environment of very low interest rates.