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Monetary Policy Coordination: A New Empirical Approach

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  • Oscar Jorda
  • Paul Bergin

    (Department of Economics, University of California Davis)

Abstract

This paper examines the degree of monetary policy coordination between major industrialized countries from a completely new perspective. The analysis uses a new data set on central bank issued interest rate targets for 14 OECD countries. The methodology that we use decomposes the notion of coordination into two components: (1) Do countries coordinate the timing of their monetary policy actions? and (2) Is there coordination in the direction in which targets are changed? The answers to these two questions are based on a newly developed dynamic discrete duration model (the autoregressive conditional hazard model or ACH) and on an ordered response model in event time. The results indicate there is significant policy coordination among these 14 countries during the 1980-1998 sample period in contrast to recent theoretical work suggesting that gains to coordination are small. Moreover, this coordination appears to work through channels other than documented coordination agreements.

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Bibliographic Info

Paper provided by University of California, Davis, Department of Economics in its series Working Papers with number 12.

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Length: 44
Date of creation: 16 Jan 2003
Date of revision:
Handle: RePEc:cda:wpaper:01-2

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Keywords: monetary policy; international coordination; interest rate targets;

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  1. Burdekin, Richard C. K. & Burkett, Paul, 1992. "The impact of US economic variables on Bank of Canada policy: direct and indirect responses," Journal of International Money and Finance, Elsevier, vol. 11(2), pages 162-187, April.
  2. Oscar Jorda & Selva Demiralp, 2003. "The Pavlovian Response of Term Rates to Fed Announcements," Working Papers 996, University of California, Davis, Department of Economics.
  3. Glenn D. Rudebusch, 1996. "Do measures of monetary policy in a VAR make sense?," Working Papers in Applied Economic Theory 96-05, Federal Reserve Bank of San Francisco.
  4. Burdekin, Richard C. K., 1989. "International transmission of US macroeconomic policy and the inflation record of Western Europe," Journal of International Money and Finance, Elsevier, vol. 8(3), pages 401-423, September.
  5. Hamilton, James D, 1996. "The Daily Market for Federal Funds," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 26-56, February.
  6. James D. Hamilton & Oscar Jorda, 2002. "A Model of the Federal Funds Rate Target," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1135-1167, October.
  7. Gilles Oudiz & Jeffrey Sachs, 1984. "Macroeconomic Policy Coordination among the Industrial Economies," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(1), pages 1-76.
  8. Benigno, Pierpaolo, 2002. "A simple approach to international monetary policy coordination," Journal of International Economics, Elsevier, vol. 57(1), pages 177-196, June.
  9. Karfakis, C. J. & Moschos, D.M., 1990. "Interest Rate Linkages Within the European Monetary System: A Time Series Analysis," Working Papers 144, University of Sydney, School of Economics.
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  11. Rudebusch, Glenn D., 1995. "Federal Reserve interest rate targeting, rational expectations, and the term structure," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 245-274, April.
  12. Jeffrey M. Wrase, 1998. "Is the Fed being swept out of (monetary) control?," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 3-12.
  13. Karsten Biltoft & Christian Boersch, 1992. "Interest rate causality and asymmetry in the EMS," Open Economies Review, Springer, vol. 3(3), pages 297-306, October.
  14. Fratianni, Michele & von Hagen, Juergen, 1990. "The European Monetary System ten years after," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 173-241, January.
  15. Michele Fratianni & Juergen Hagen, 1992. "German dominance in the EMS:The empirical evidence," Open Economies Review, Springer, vol. 3(1), pages 127-128, February.
  16. Katsimbris, George M & Miller, Stephen M, 1993. "Interest Rate Linkages within the European Monetary System: Further Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(4), pages 771-79, November.
  17. Hagen, Jurgen von & Fratianni, Michele, 1990. "German dominance in the EMS: evidence from interest rates," Journal of International Money and Finance, Elsevier, vol. 9(4), pages 358-375, December.
  18. Stanley Fischer & W. Michael Blumenthal & Charles L. Schultze & Alan Greenspan & Helmut Schmidt, 1988. "Macroeconomic Policy," NBER Chapters, in: International Economic Cooperation, pages 11-78 National Bureau of Economic Research, Inc.
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