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This paper adopts an modle with endogenous variable to investigates policy inertia hypothesis or unobserved variable hypothesis in Taiwan¡¦s interest-rate rule 1981- 2010. Empirical result suggests that both policy inertia and omitted variable hypothesis are important in monetary policy in Taiwan,which is consistent with that of Gerlach- Kristen (2004).

This thesis analyses the monetary policy of the Fed in the period before the financial and economic crisis 2007. The aim of this analysis is to investigate whether the monetary policy significantly deviated from the preceding one which, according to John Taylor, adhered to the Taylor rule. This analysis is performed using both revised and real-time data. I compare the monetary policy with various specifications of the Taylor rule. I also estimate a forward-looking Taylor rule. The results confirm the deviation from the Taylor rule. However, deviations were usual in the whole sample period. Estimated models do not indicate that the monetary policy before the crisis was different from the rest of the analyzed period.