Evaluating the Role of the Exchange Rate in Monetary Policy Reaction Function of Advanced and Emerging Market Economies

Fabris, Nikola; Lazić, Milena

doi:10.2478/jcbtp-2022-0014

Cited by 9 publications

(9 citation statements)

References 47 publications

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“…Certainly, we cannot ignore the role of central banks (Fabris and Lazić, 2022) and their unconventional monetary policies in affecting income inequality. In this study, our focus was to establish the link between growth and income inequality.…”

Section: Discussionmentioning

confidence: 99%

Resilience and Path Dependency: Income Distribution Effects of GDP in Colombia

Aysan

Demirbaş

Disli

et al. 2023

Journal of Central Banking Theory and Practice

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This study examines the effect of GDP per capita on the Gini index, which measures income concentration, in Colombia. The methodology used is an econometric analysis of time series with data extracted from the Inter-American Development Bank and the World Bank. The econometric results suggest that, at least during the period studied here, there is no evidence that GDP per capita has been an explanatory variable of the behaviour of income distribution in Colombia. The results also align with the understanding that the problem of inequality in the distribution of income is not merely economic but concerns persistent matters such as political and historical issues.

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Section: Discussionmentioning

confidence: 99%

Resilience and Path Dependency: Income Distribution Effects of GDP in Colombia

Aysan

Demirbaş

Disli

et al. 2023

Journal of Central Banking Theory and Practice

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“…An expected increase in the CB rate in response to the RER undervaluation was found for Czechia, but not for Hungary, Poland and Romania (Shevchuk, 2020). Recently, Fabris and Lazić (2022) suggested that the central bank reaction to the exchange rate changes is characteristic of the emerging market economies only, not developed ones.…”

Section: Literature Reviewmentioning

confidence: 95%

Inflation targeting, exchange rate and output gap in Central and Eastern European countries

Shevchuk,

Kopych

2024

Argumenta Oeconomica

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This paper aims at empirical assessment of monetary policy relationships in Central and Eastern European countries (Czechia, Hungary, Poland, Romania), which practise the monetary regime of inflation targeting. Using quarterly data for the period of 2004-2019, the authors examined the relationship between the output gap, nominal and real exchange rate misalignment, consumer price inflation and the central bank policy rate, using the panel vector autoregression (PVAR) model. According to estimates, the central banks of the CEE-4 countries react with an increase of their policy rate to the output gap and inflation, as implied by the Taylor rule. At the same time, a monetary reaction to nominal (real) exchange rate misalignment is lost in the estimates for the post-crisis period of 2010-2019. An increase of the central bank rates does not seem to have unfavourable output effects, while the nominal exchange rate is likely to depreciate with three to five quarter lags. However, there is evidence of the price puzzle when monetary tightening is followed by a counterintuitive increase in the inflation rate. In full accordance with the New Keynesian framework, inflation depends on the output gap, while being expansionary in the real sector. Evidence of the exchange rate pass-through (ERPT) to inflation is mixed. This article provides insights into the average monetary policy reaction function and its macroeconomic effects in the CEE-4 countries, with the value added in that following the Taylor rule does not guarantee effectiveness in tackling inflation in the presence of the price puzzle. Based on the estimated exchange rate effects on the output gap and inflation, deliberate currency appreciation resulting from the central bank foreign exchange interventions and/or fiscal austerity measures can be helpful for such a disinflation that minimises output losses.

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“…Researchers have investigated many factors that influence monetary policy success or failure, such as inflation targeting, interest rate adjustments, and open market activities. Taylor's key study set the groundwork for the Taylor Rule, providing a systematic way to assess the effectiveness of interest rate changes in monetary policy (Fabris & Lazić, 2022;Levrero, 2023;Orphanides, 2003). Similarly, a study published in the Journal of Monetary Economics studied how liquidity constraints and credit availability affect the effectiveness of monetary policy (Borio & Zhu, 2012;Fabris & Lazić, 2022;Rezende et al, 2021).…”

Section: Literature Review 21 Monetary Policy Effectivenessmentioning

confidence: 99%

“…Taylor's key study set the groundwork for the Taylor Rule, providing a systematic way to assess the effectiveness of interest rate changes in monetary policy (Fabris & Lazić, 2022;Levrero, 2023;Orphanides, 2003). Similarly, a study published in the Journal of Monetary Economics studied how liquidity constraints and credit availability affect the effectiveness of monetary policy (Borio & Zhu, 2012;Fabris & Lazić, 2022;Rezende et al, 2021). The current global context, typified by rapid technological breakthroughs and disruptive financial innovations, warrants a reconsideration of this classic economic idea.…”

Section: Literature Review 21 Monetary Policy Effectivenessmentioning

confidence: 99%

Impact of Distributed Ledger Technology (DLT) and Fintech Investment on Central Bank Policy and Monetary Policy Effectiveness

Rehman,

Khan,

Subhani

et al. 2023

BBE

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Central banks confront enormous hurdles in preserving the efficiency of their monetary policies in the face of rapid technological improvements in the financial industry. The effects of Distributed Ledger Technology (DLT) adoption, fintech investment, and regulatory flexibility by central banks on the effectiveness of monetary policy is investigated in this paper. Data were gathered quantitatively through surveys of financial professionals, policymakers, and central bank officials. The findings demonstrated that DLT adoption, fintech investment, and regulatory flexibility have a considerable positive effect on the effectiveness of monetary policy. The study not only validates but also extends previous material and provides policymakers with practical consequences. Limitations and future research directions are also highlighted.

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Evaluating the Role of the Exchange Rate in Monetary Policy Reaction Function of Advanced and Emerging Market Economies

Cited by 9 publications

References 47 publications

Resilience and Path Dependency: Income Distribution Effects of GDP in Colombia

Resilience and Path Dependency: Income Distribution Effects of GDP in Colombia

Inflation targeting, exchange rate and output gap in Central and Eastern European countries

Impact of Distributed Ledger Technology (DLT) and Fintech Investment on Central Bank Policy and Monetary Policy Effectiveness

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