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Monetary regime change and business cycles

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  • Vasco Cúrdia
  • Daria Finocchiaro

Abstract

This paper analyzes how changes in monetary policy regimes influence the business cycle in a small open economy. We estimate a dynamic stochastic general equilibrium (DSGE) model on Swedish data, explicitly taking into account the 1993 monetary regime change, from exchange rate targeting to inflation targeting. The results confirm that monetary policy reacted primarily to exchange rate movements in the target zone and to inflation in the inflation-targeting regime. Devaluation expectations were the principal source of volatility in the target zone period. In the inflation-targeting period, labor supply and preference shocks have become relatively more important.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 294.

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Date of creation: 2007
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Handle: RePEc:fip:fednsr:294

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Keywords: Business cycles ; Monetary policy ; Foreign exchange rates ; Inflation (Finance) ; Equilibrium (Economics) ; Stochastic analysis ; Econometric models;

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Cited by:
  1. Michael Cheng & Wai-Yip Alex Ho, 2009. "A Structural Investigation into the Price and Wage Dynamics in Hong Kong," Working Papers 0920, Hong Kong Monetary Authority.
  2. Burgess, Stephen & Fernandez-Corugedo, Emilio & Groth, Charlotta & Harrison, Richard & Monti, Francesca & Theodoridis, Konstantinos & Waldron, Matt, 2013. "The Bank of England's forecasting platform: COMPASS, MAPS, EASE and the suite of models," Bank of England working papers 471, Bank of England.

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