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Assessing McCallum and Taylor rules in a cross-section of emerging market economies

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  • Mehrotra, Aaron

    ()
    (BOFIT)

  • Sánchez-Fung, José R.

    (BOFIT)

Abstract

The paper estimates McCallum and Taylor monetary policy reaction functions, and hybrids mixing instruments and targets from the two frameworks, for 20 emerging market economies. McCallum-Taylor specifications with an interest rate instrument and a nominal income gap target perform better than benchmark Taylor rules in describing monetary policy in inflation targeting economies. Estimating reaction functions for economies operating monetary and exchange rate targeting regimes produces mixed results, often revealing a lean with the wind behaviour. Instrument smoothing is a feature in the monetary base and in the interest rate reaction functions, but the exchange rate is not consistently significant. The results from the econometric analysis are robust to using alternative estimators.

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Bibliographic Info

Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 23/2009.

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Length: 41 pages
Date of creation: 01 Dec 2009
Date of revision:
Handle: RePEc:hhs:bofitp:2009_023

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Keywords: McCallum and Taylor rules; nominal feedback rule; monetary policy; inflation targeting; emerging markets;

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Cited by:
  1. Carlos Montoro & Elöd Takats & James Yetman, 2012. "Is monetary policy constrained by fiscal policy?," BIS Papers chapters, in: Bank for International Settlements (ed.), Fiscal policy, public debt and monetary policy in emerging market economies, volume 67, pages 11-30 Bank for International Settlements.
  2. Fredj Jawadi & Sushanta K. Mallick & Ricardo M. Sousa, 2011. "Monetary Policy Rules in the BRICS: How Important is Nonlinearity?," NIPE Working Papers 18/2011, NIPE - Universidade do Minho.
  3. Bleich, Dirk & Fendel, Ralf & Rülke, Jan-Christoph, 2012. "Inflation targeting makes the difference: Novel evidence on inflation stabilization," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1092-1105.
  4. Geert Bekaert & Xiaozheng Wang, 2010. "Inflation risk and the inflation risk premium," Economic Policy, CEPR & CES & MSH, vol. 25, pages 755-806, October.
  5. Muneesh Kapur & Michael Debabrata Patra, 2012. "Alternative Monetary Policy Rules for India," IMF Working Papers 12/118, International Monetary Fund.
  6. Galimberti, Jaqueson K. & Moura, Marcelo L., 2013. "Taylor rules and exchange rate predictability in emerging economies," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 1008-1031.
  7. William Miles & Sam Schreyer, 2012. "Is monetary policy non-linear in Indonesia, Korea, Malaysia, and Thailand? A quantile regression analysis," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 26(2), pages 155-166, November.
  8. Adolfo Barajas & Roberto Steiner & Leonardo Villar & César Pabón, 2014. "Inflation Targeting in Latin America," WORKING PAPERS SERIES. DOCUMENTOS DE TRABAJO 011550, FEDESARROLLO.

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