| In this article, efficient generalized Taylor rules are obtained as the solution to a dynamic programming problem in which interest rates are chosen tominimize the discounted sum of observed inflation and output variations. The properties of these efficient rules are used to derive efficiency conditionsthat are amenable to estimation. The theoretical efficiency criteria are used to develop general guidelines for formulating monetary policy and to assess the efficiency of the interest-rate policies employed in six countries. Annual Taylor rules are estimated and evaluated for Canada, France, Germany, Italy, the United Kingdom, and the United States. |