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Nonlinear Taylor rules in Central Eastern European countries

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  • Chi Wei Su
  • Hsu-Ling Chang
  • Chengsi Zhang

Abstract

This study applies sequential panel selection method (SPSM), proposed by Chortareas and Kapetanios (2009), to investigate to test the validity of Taylor rules to assess the nonstationary properties of the convergence of the real exchange rates for 10 Central Eastern European countries. The SPSM can be used to decompose a panel of real exchange rate series into two groups: a group of stationary series and a group of nonstationary series. We identify the stationary processes in the panel and demonstrate that Taylor rules holds for 7 of the 10 countries studied. These results imply that the choices and effectiveness of the monetary policies in Central Eastern European economies are highly influenced by external factors originating from the United States. Additionally, our findings highlight that their real exchange rate convergence is a mean reversion toward equilibrium values of Taylor rules in a nonlinear manner.

Suggested Citation

  • Chi Wei Su & Hsu-Ling Chang & Chengsi Zhang, 2016. "Nonlinear Taylor rules in Central Eastern European countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(3), pages 357-376, June.
    • Handle: RePEc:taf:jitecd:v:25:y:2016:i:3:p:357-376
    DOI: 10.1080/09638199.2015.1054862
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    Cited by:

    1. Jens Klose, 2019. "Are Eastern European Taylor Reaction Functions Asymmetric in Inflation or Output? Empirical Evidence for Four Countries," Eastern European Economics, Taylor & Francis Journals, vol. 57(1), pages 31-49, January.

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