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Monetary regime change and business cycles

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  • Cúrdia, Vasco
  • Finocchiaro, Daria

Abstract

This paper proposes a method to structurally estimate a model with a regime shift and evaluates the importance of acknowledging the break in the estimation. We estimate a DSGE model on Swedish data taking into account the regime change in 1993, from exchange rate targeting to inflation targeting. Ignoring the break leads to spurious estimates. Accounting for the break suggests that monetary policy reacted strongly to exchange rate movements in the first regime, and mostly to inflation in the second. The sources of business cycles and their transmission mechanism are significantly affected by the exchange rate regime.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 37 (2013)
Issue (Month): 4 ()
Pages: 756-773

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Handle: RePEc:eee:dyncon:v:37:y:2013:i:4:p:756-773

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Web page: http://www.elsevier.com/locate/jedc

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Keywords: Bayesian estimation; DSGE models; Target zone; Inflation targeting; Regime change;

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Cited by:
  1. Burgess, Stephen & Fernandez-Corugedo, Emilio & Groth, Charlotta & Harrison, Richard & Monti, Francesca & Theodoridis, Konstantinos & Waldron, Matt, 2013. "The Bank of England's forecasting platform: COMPASS, MAPS, EASE and the suite of models," Bank of England working papers 471, Bank of England.
  2. Michael Cheng & Wai-Yip Alex Ho, 2009. "A Structural Investigation into the Price and Wage Dynamics in Hong Kong," Working Papers 0920, Hong Kong Monetary Authority.

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