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Measuring monetary policy interdependence

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  • Bergin, Paul R.
  • Jorda, Oscar

Abstract

This paper measures the degree of monetary policy interdependence between major industrialized countries from a new perspective. The analysis uses a special data set on central bank issued policy rate targets for 14 OECD countries. Methodologically, our approach is novel in that we separately examine monetary interdependence due to (1) the coincidence in time of when policy actions are executed from (2) the nature and magnitude of the policy adjustments made. The first of these elements requires that the timing of events be modeled with a dynamic discrete duration design. The discrete nature of the policy rate adjustment process that characterizes the second element is captured with an ordered response model. The results indicate there is significant policy interdependence among these 14 countries during the 1980-1998 sample period. This is especially true for a number of European countries which appeared to respond to German policy during our sample period. A number of other countries appeared to respond to U.S. policy, though this number is smaller than that suggested in preceding studies. Moreover, the policy harmonization we find appears to work through channels other than formal coordination agreements.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 23 (2004)
Issue (Month): 5 (September)
Pages: 761-783

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Handle: RePEc:eee:jimfin:v:23:y:2004:i:5:p:761-783

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Web page: http://www.elsevier.com/locate/inca/30443

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Cited by:
  1. Ansgar Belke & Thorsten Polleit, 2005. "(How) Do Stock Market Returns React to Monetary Policy? - An ARDL Cointegration Analysis for Germany," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 253/2005, Department of Economics, University of Hohenheim, Germany.
  2. Ullrich, Katrin, 2003. "A Comparison Between the Fed and the ECB: Taylor Rules," ZEW Discussion Papers 03-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Chiara Scotti, 2006. "A bivariate model of Fed and ECB main policy rates," International Finance Discussion Papers 875, Board of Governors of the Federal Reserve System (U.S.).
  4. Yin-Wong Cheung & Dickson Tam & Matthew S. Yiu, 2007. "Does the Chinese Interest Rate Follow the US Interest Rate?," CESifo Working Paper Series 1943, CESifo Group Munich.
  5. Anthony Landry, 2005. "The Mundell-Fleming-Dornbusch Model in a New Bottle," Computing in Economics and Finance 2005 455, Society for Computational Economics.
  6. Grammig, Joachim & Kehrle, Kerstin, 2008. "A new marked point process model for the federal funds rate target: Methodology and forecast evaluation," Journal of Economic Dynamics and Control, Elsevier, vol. 32(7), pages 2370-2396, July.

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