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Assessing monetary rules performance across EMU countries

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  • Carlo Altavilla

    (KU Leuven, Belgium)

Abstract

The topic covered in this paper is the performance of different monetary policy rules used as guidelines in practical policy making. To this end, different rules are evaluated using alternative econometrics techniques. A comparative analysis is made of the ability of the rules to correspond to the historical central bank behaviour and of the volatility of output, inflation and interest rate changes that they imply. The study is conducted of the EMU countries. The results suggest that simple rules perform quite well and that the advantages obtained from adopting an optimal control-based rule are not so great. Moreover, the addition of a forward-looking dimension and of an interest rate smoothing term in the reaction function seems to improve the performance of the rules. Copyright © 2003 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.199
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 8 (2003)
Issue (Month): 2 ()
Pages: 131-151

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Handle: RePEc:ijf:ijfiec:v:8:y:2003:i:2:p:131-151

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  1. Ben S. Bernanke & Mark Gertler & Mark Watson, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 91-157.
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  3. Gerlach, Stefan & Schnabel, Gert, 1999. "The Taylor Rule and Interest Rates in the EMU Area," CEPR Discussion Papers 2271, C.E.P.R. Discussion Papers.
  4. Ugo Marani & Carlo Altavilla, 1999. "The Monetary Policy of the European Central Bank and the Euro-US Dollar Exchange Rate," Center for Economic Studies - Discussion papers ces9923, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
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  7. Frank Smets, 2002. "Output gap uncertainty: Does it matter for the Taylor rule?," Empirical Economics, Springer, vol. 27(1), pages 113-129.
  8. Carlo Altavilla, 2000. "Measuring Monetary Policy Assymmetries across EMU Countries," Center for Economic Studies - Discussion papers ces0022, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
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Cited by:
  1. Marc-Alexandre Sénégas, 2002. "La politique monétaire face à l'incertitude : un survol méthodologique des contributions relatives à la zone euro," Revue d'Économie Financière, Programme National Persée, vol. 65(1), pages 177-200.
  2. Orlowski, Lucjan T., 2010. "Monetary policy rules for convergence to the Euro," Economic Systems, Elsevier, vol. 34(2), pages 148-159, June.
  3. Ho-Chuan Huang & Shu-Chin Lin, 2006. "Time-varying discrete monetary policy reaction functions," Applied Economics, Taylor & Francis Journals, vol. 38(4), pages 449-464.
  4. Carlo Altavilla & Matteo Ciccarelli, 2009. "The Effects of Monetary Policy on Unemployment Dynamics under Model Uncertainty - Evidence from the US and the Euro Area," CESifo Working Paper Series 2575, CESifo Group Munich.
  5. Juha Kilponen & Marc-Alexandre Sénégas & Jouko Vilmunen, 2007. "Bayesian versus robust control approach towards parameter uncertainty in monetary policymaking: how close are the outcomes? Some illustrating evidence from the EMU economies," Money Macro and Finance (MMF) Research Group Conference 2006 113, Money Macro and Finance Research Group.
  6. Leith, Campbell & Wren-Lewis, Simon, 2009. "Taylor rules in the open economy," European Economic Review, Elsevier, vol. 53(8), pages 971-995, November.
  7. Eleftheriou, Maria & Gerdesmeier, Dieter & Roffia, Barbara, 2006. "Monetary policy rules in the pre-EMU era: Is there a common rule?," Working Paper Series 0659, European Central Bank.
  8. Carlo Altavilla & Matteo Ciccarelli, 2008. "Inflation models, optimal monetary policy and uncertain unemployment dynamics: Evidence from the US and the euro area," Discussion Papers 8_2008, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.

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