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Inflation Targeting and Monetary Policy Activism

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  • Toshitaka Sekine

    (Associate Monetary Affairs Department, Bank of Japan (E-mail: toshitaka.sekine @boj.or.jp))

  • Yuki Teranishi

    (Associate Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: yuuki.teranishi @boj.or.jp))

Abstract

We estimate monetary policy activism, defined as responsiveness of the policy interest rate to inflation, among five inflation-targeting countries (the UK, Canada, Sweden, Australia and New Zealand) plus the G3 (the US, Japan and Germany) by applying a time- varying parameter with a stochastic-volatility model. We find that activism of inflation-targeting countries tends to have increased before (not after) the adoption of the inflation-targeting policy framework and that these countries have experienced a decline in activism in recent years, albeit to different degrees. We further explore this result in terms of the constraint of an inflation target range by developing a formal theoretical model in a New Keynesian framework.

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Bibliographic Info

Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 08-E-13.

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Date of creation: Jul 2008
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Handle: RePEc:ime:imedps:08-e-13

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Keywords: Inflation-targeting Policy; Monetary Policy Activism; New Keynesian Model; Markov chain Monte Carlo; Time-varying Parameter with Stochastic Volatility Model;

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Citations

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Cited by:
  1. Baxa, Jaromír & Horváth, Roman & Vašíček, Bořek, 2013. "Time-varying monetary-policy rules and financial stress: Does financial instability matter for monetary policy?," Journal of Financial Stability, Elsevier, Elsevier, vol. 9(1), pages 117-138.
  2. Jaromir Baxa & Roman Horvath & Borek Vasicek, 2010. "How Does Monetary Policy Change? Evidence on Inflation Targeting Countries," Working Papers, Czech National Bank, Research Department 2010/02, Czech National Bank, Research Department.
  3. Toshitaka Sekine, 2009. "Another look at global disinflation," NBER Chapters, National Bureau of Economic Research, Inc, in: Financial Globalization, 20th Anniversary Conference, NBER-TCER-CEPR National Bureau of Economic Research, Inc.
  4. Akito Matsumoto & Pietro Cova & Massimiliano Pisani & Alessandro Rebucci, 2011. "News Shocks and Asset Price Volatility in General Equilibrium," Research Department Publications, Inter-American Development Bank, Research Department 4740, Inter-American Development Bank, Research Department.
  5. Jouchi Nakajima, 2011. "Time-Varying Parameter VAR Model with Stochastic Volatility: An Overview of Methodology and Empirical Applications," IMES Discussion Paper Series, Institute for Monetary and Economic Studies, Bank of Japan 11-E-09, Institute for Monetary and Economic Studies, Bank of Japan.

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