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Is monetary policy in the new EU member states asymmetric?

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  • Vašíček, Bořek

Abstract

Estimated Taylor rules have become popular as a description of monetary policy conduct. There are numerous reasons why real monetary policy can be asymmetric and estimated Taylor rules nonlinear. This paper tests whether monetary policy can be described as asymmetric in three new European Union (EU) members (the Czech Republic, Hungary, and Poland) which apply an inflation targeting regime. Two different empirical frameworks are used: (i) Generalized Method of Moments (GMM) estimation of models that allow discrimination between sources of potential policy asymmetry but are conditioned by specific underlying relations, and (ii) a flexible framework of sample splitting where nonlinearity enters via a threshold variable and monetary policy is allowed to switch between regimes. We find generally little evidence for asymmetric policy driven by nonlinearities in economic systems, some evidence for asymmetric preferences, and some interesting evidence on policy switches driven by the intensity of financial distress in the economy.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 36 (2012)
Issue (Month): 2 ()
Pages: 235-263

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Handle: RePEc:eee:ecosys:v:36:y:2012:i:2:p:235-263

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Keywords: Monetary policy; Inflation targeting; Nonlinear Taylor rules; Threshold estimation;

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References

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Cited by:
  1. Anna Sznajderska, 2012. "On asymmetric effects in a monetary policy rule. The case of Poland," National Bank of Poland Working Papers 125, National Bank of Poland, Economic Institute.
  2. Neuenkirch, Matthias, 2014. "Are public preferences reflected in monetary policy reaction functions?," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 60-68.

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