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Taylor Principle And Inflation Stability In Emerging Market Countriesw

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  • Kuhl Teles, Vladimir
  • Zaidan, Marta

Abstract

The goal of this paper is to evaluate the validity of the Taylor principle for inflation control in 12 developing countries that use inflationtargeting regimes: Brazil, Chile, Colombia, Hungary, Israel, Mexico,Peru, Philippines, Poland, South Africa, Thailand and Turkey. The test is based on a state-space model to determine when each country hasfollowed the principle; then a threshold unit root test is used to verify if the stationarity of the deviation of the expected inflation from itstarget depends on compliance with the Taylor principle. The results show that such compliance leads to the stationarity of the deviation of the expected inflation from its target in all cases. Furthermore, in mostcases, non-compliance with the Taylor principle leads to nonstationary deviation of the expected inflation.

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Bibliographic Info

Paper provided by Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil) in its series Textos para discussão with number 197.

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Date of creation: 26 Aug 2009
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Handle: RePEc:fgv:eesptd:197

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  1. Jean Boivin & Marc P. Giannoni, 2003. "Has Monetary Policy Become More Effective?," NBER Working Papers 9459, National Bureau of Economic Research, Inc.
  2. Timothy Cogley & Thomas J. Sargent, 2005. "Drift and Volatilities: Monetary Policies and Outcomes in the Post WWII U.S," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 262-302, April.
  3. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1908, C.E.P.R. Discussion Papers.
  4. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 135-174.
  5. Vladimir K. Teles & Mario Brundo, 2006. "Medidas De Política Monetária E A Função De Reação Do Banco Central No Brasil," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of G 82, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  6. Christopher A. Sims & Tao Zha, 2006. "Were There Regime Switches in U.S. Monetary Policy?," American Economic Review, American Economic Association, American Economic Association, vol. 96(1), pages 54-81, March.
  7. John P. Judd & Glenn D. Rudebusch, 1998. "Taylor's rule and the Fed, 1970-1997," Economic Review, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, pages 3-16.
  8. Ben S. Bernanke & Michael Woodford, 1997. "Inflation forecasts and monetary policy," Proceedings, Federal Reserve Bank of Cleveland, Federal Reserve Bank of Cleveland, pages 653-686.
  9. James H. Stock & Mark W. Watson, 2002. "Has the Business Cycle Changed and Why?," NBER Working Papers 9127, National Bureau of Economic Research, Inc.
  10. Giorgio E. Primiceri, 2005. "Time Varying Structural Vector Autoregressions and Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 821-852.
  11. Goncalves, Carlos Eduardo S. & Salles, Joao M., 2008. "Inflation targeting in emerging economies: What do the data say?," Journal of Development Economics, Elsevier, Elsevier, vol. 85(1-2), pages 312-318, February.
  12. Thomas Lubik & Frank Schorfheide, 2002. "Testing for Indeterminacy:An Application to U.S. Monetary Policy," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 480, The Johns Hopkins University,Department of Economics, revised Jun 2003.
  13. Bruce E. Hansen & Mehmet Caner, 1997. "Threshold Autoregressions with a Unit Root," Boston College Working Papers in Economics, Boston College Department of Economics 381, Boston College Department of Economics.
  14. Pippenger, Michael K & Goering, Gregory E, 1993. "A Note on the Empirical Power of Unit Root Tests under Threshold Processes," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 55(4), pages 473-81, November.
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Cited by:
  1. Pierre-Richard Agenor & Koray Alper & Luiz Pereira da Silva, 2012. "Capital Regulation, Monetary Policy and Financial Stability," Working Papers 1228, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  2. Galimberti, Jaqueson K. & Moura, Marcelo L., 2010. "Taylor Rules and Exchange Rate Predictability in Emerging Economies," Insper Working Papers, Insper Working Paper, Insper Instituto de Ensino e Pesquisa wpe_214, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  3. Christian Eduardo Balbino & Ernesto Colla & Vladimir Kuhl Teles, 2011. "A Política Monetária Brasileira sob o Regime de Metas de Inflação," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 65(2), pages 113-126, June.
  4. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Inflation Targeting and Financial Stability: A Perspective from the Developing World," Working Papers Series, Central Bank of Brazil, Research Department 324, Central Bank of Brazil, Research Department.
  5. Armand Fouejieu Azangue, 2014. "Inflation Targeters Do Not Care (Enough) about Financial Stability: A Myth?," Working Papers, HAL halshs-01012077, HAL.

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