Estimating Central Banks’ preferences from a time-varying empirical reaction function

Assenmacher, Katrin

doi:10.1016/j.euroecorev.2005.10.003

Cited by 80 publications

(49 citation statements)

References 31 publications

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“…Assenmacher-Wesche (2006) used it for the United States, the United Kingdom and Germany, and Creel and Hubert (2009) conducted a similar exercise for Canada, Sweden and the United Kingdom. Both studies were able to discern periods in which monetary policy was relatively more "hawkish" or "dovish" on inflation-i.e., reacting more (less) vigorously to the inflation differential and less (more) to the output gap.…”

Section: Markov-switching Estimation Of Taylor Rulesmentioning

confidence: 99%

Inflation Targeting in Latin America

Barajas

Steiner

Villar³

et al. 2014

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent. Terms of use: Documents inThe unauthorized commercial use of Bank documents is prohibited and may be punishable under the Bank's policies and/or applicable laws.Copyright © Inter-American Development Bank. This working paper may be reproduced for any non-commercial purpose. It may also be reproduced in any academic journal indexed by the American Economic Association's EconLit, with previous consent by the Inter-American Development Bank (IDB), provided that the IDB is credited and that the author(s) receive no income from the publication. Estimation of conventional Taylor rules for Brazil, Chile, Colombia and Peru shows that central banks increase their repo rate in response to increases in the output gap and, except in Peru, to deviations of inflation expectations from target. Using a Markov-Switching methodology, it is found that, in the presence of external shocks, Chile, Colombia and Peru temporarily abandoned their conventional reaction function. The Taylor Rule is expanded and variables are included related to exchange rate misalignments and to domestic credit developments; limited evidence is found that countries have used some form of integrated inflation targeting. There is strong evidence that intervention in F/X markets is determined by exchange rate misalignments rather than by exchange rate volatility and that most countries seem particularly concerned with a strong currency. Central banks appear to have pursued an inflation objective using a standard Taylor rule and an exchange rate objective through interventions in the F/X market. Cataloging-in-Publication JEL classifications: E31, E52, E61

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Section: Markov-switching Estimation Of Taylor Rulesmentioning

confidence: 99%

Inflation Targeting in Latin America

Barajas

Steiner

Villar³

et al. 2014

SSRN Journal

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“…In the case of Germany they find a strengthening of the anti-inflation policy stance in the early 1980s which is then relaxed around the time of German reunification. Finally, Assenmacher-Wesche (2005) estimates monetary policy reaction functions for the US, UK and Germany allowing for switches in the rule parameters and/or residual variances. Her estimates suggest that Germany entered a low inflation regime between 1983 and 1990, only returning to that regime in 1996.…”

Section: Related Papers For the Euro Areamentioning

confidence: 99%

An Empirical Assessment of Optimal Monetary Policy Delegation in the Euro Area

2014

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We estimate a New Keynesian DSGE model for the Euro area under alternative descriptions of monetary policy (discretion, commitment or a simple rule) after allowing for Markov switching in policy maker preferences and shock volatilities. This reveals that there have been several changes in Euro area policy making, with a strengthening of the anti-inflation stance in the early years of the ERM, which was then lost around the time of German reunification and only recovered following the turnoil in the ERM in 1992. The ECB does not appear to have been as conservative as aggregate Euro-area policy was under Bundesbank leadership, and its response to the financial crisis has been muted. The estimates also suggest that the most appropriate description of policy is that of discretion, with no evidence of commitment in the Euro-area. As a result although both 'good luck' and 'good policy' played a role in the moderation of inflation and output volatility in the Euro-area, the welfare gains would have been substantially higher had policy makers been able to commit. We consider a range of delegation schemes as devices to improve upon the discretionary outcome, and conclude that price level targeting would have achieved welfare levels close to those attained under commitment, even after accounting for the existence of the Zero Lower Bound on nominal interest rates.

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“…Some studies have applied Markov-switching models to the study of monetary policy asymmetries or nonlinearities (Kaufmann, 2002, Altavilla and Landolfo, 2005, Assenmacher-Wesche, 2006 Bec et al (2000), we allow for the possibility of interest rate smoothing.…”

Section: A Brief Review Of the Literature On The Taylor Rulementioning

confidence: 99%

Are Central Banks Following a Linear or Nonlinear (Augmented) Taylor Rule?

Castro

2008

SSRN Journal

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The Taylor rule establishes a simple linear relation between the interest rate, inflation and output gap. However, this relation may not be so simple. To get a deeper understanding of central banks' behaviour, this paper asks whether central banks are In particular, those two central banks tend to react to inflation only when inflation is above or outside their targets. Moreover, our evidence suggests that the European Central Bank is targeting financial conditions, contrary to the other two central banks.This lack of attention to the financial conditions might have made the United States and the United Kingdom more vulnerable to the recent credit crunch than the Eurozone.

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Estimating Central Banks’ preferences from a time-varying empirical reaction function

Cited by 80 publications

References 31 publications

Inflation Targeting in Latin America

Inflation Targeting in Latin America

An Empirical Assessment of Optimal Monetary Policy Delegation in the Euro Area

Are Central Banks Following a Linear or Nonlinear (Augmented) Taylor Rule?

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