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Asymmetric Taylor reaction functions of the ECB: An approach depending on the state of the economy

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  • Klose, Jens

Abstract

We introduce a new approach to estimate asymmetric Taylor reaction functions where asymmetries depend crucially on the state of the economy which is in the Taylor rule framework the combination of inflation and output deviations. Thus we categorize the sample into four subsamples which correspond to all possible combinations concerning inflation and output deviations. Moreover we introduce a quadratic term of inflation and the output gap in the estimation equation for each state in order to capture possible non-linearities within each state. The approach is tested using data for the ECB because the ECB has communicated an explicit inflation target.

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Bibliographic Info

Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 22 (2011)
Issue (Month): 2 (August)
Pages: 149-163

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Handle: RePEc:eee:ecofin:v:22:y:2011:i:2:p:149-163

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Web page: http://www.elsevier.com/locate/inca/620163

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Keywords: Asymmetries Non-linearities Taylor rule European Central Bank;

References

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Citations

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Cited by:
  1. Jens Klose, 2012. "Political business cycles and monetary policy revisited–an application of a two-dimensional asymmetric Taylor reaction function," International Economics and Economic Policy, Springer, vol. 9(3), pages 265-295, September.
  2. Darius Kulikauskas, 2014. "Nonlinear Taylor rule for the European Central Bank," Economics Bulletin, AccessEcon, vol. 34(3), pages 1798-1804.
  3. Ansgar Belke & Jens Klose, 2012. "Modifying Taylor Reaction Functions in Presence of the Zero-Lower-Bound – Evidence for the ECB and the Fed," ROME Working Papers, ROME Network 201203, ROME Network.
  4. Moura, Marcelo L. & Gaião, Rafael L., 2014. "Impact of macroeconomic surprises on the Brazilian yield curve and expected inflation," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 27(C), pages 114-144.
  5. Nikolay Markov & Carlos de Porres, 2011. "Is the Taylor Rule Nonlinear? Empirical Evidence from a Semi-Parametric Modeling Approach," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva, Institut d'Economie et Econométrie, Université de Genève 11052, Institut d'Economie et Econométrie, Université de Genève.
  6. Belke, Ansgar & Klose, Jens, 2013. "Modifying Taylor reaction functions in the presence of the zero‐lower‐bound — Evidence for the ECB and the Fed," Economic Modelling, Elsevier, vol. 35(C), pages 515-527.

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