Advanced Search
MyIDEAS: Login to save this paper or follow this series

Asymmetric monetary policy rules for open economies: Evidence from four countries

Contents:

Author Info

  • Caglayan, Mustafa
  • Jehan, Zainab
  • Mouratidis, Kostas

Abstract

This study presents an analytical framework to examine the policy reaction function of a central bank in an open economy context while allowing for asymmetric preferences. The paper then empirically examines the policy rule obtained from this framework using quarterly data for the US, Canada, Japan, and the UK. The results, based on GMM approach, provide evidence that domestic policy is affected by changes in the foreign interest rate and exchange rate. We also provide evidence of the presence of asymmetries in response to the inflation rate and output gap for all the sample countries.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/37401/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37401.

as in new window
Length:
Date of creation: 26 Apr 2012
Date of revision:
Handle: RePEc:pra:mprapa:37401

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: Monetary policy rule; asymmetric preferences; open economy;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Bennett T McCallum & Edward Nelson, 2001. "Monetary Policy for an Open Economy: An Alternative Framework with Optimising Agents and Sticky Prices," Discussion Papers, Monetary Policy Committee Unit, Bank of England 05, Monetary Policy Committee Unit, Bank of England.
  2. Dolado, Juan J. & Maria-Dolores, Ramon & Naveira, Manuel, 2005. "Are monetary-policy reaction functions asymmetric?: The role of nonlinearity in the Phillips curve," European Economic Review, Elsevier, Elsevier, vol. 49(2), pages 485-503, February.
  3. Bernanke, Ben S. & Mihov, Ilian, 1995. "Measuring Monetary Policy," Economics Series, Institute for Advanced Studies 10, Institute for Advanced Studies.
  4. Francisco J. Ruge-Murcia, 2004. "Methods to Estimate Dynamic Stochastic General Equilibrium Models," 2004 Meeting Papers 83, Society for Economic Dynamics.
  5. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
  6. Richard Clarida & Jordi Gali & Mark Gertler, 2002. "A Simple Framework for International Monetary Policy Analysis," NBER Working Papers 8870, National Bureau of Economic Research, Inc.
  7. Bec Frédérique & Ben Salem Mélika & Collard Fabrice, 2002. "Asymmetries in Monetary Policy Reaction Function: Evidence for U.S. French and German Central Banks," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 6(2), pages 1-22, July.
  8. Xiaoshan Chen & Ronald MacDonald, 2011. "Realised and Optimal Monetary Policy Rules in an Estimated Markov-Switching DSGE Model of the United Kingdom," Working Papers, Business School - Economics, University of Glasgow 2011_04, Business School - Economics, University of Glasgow.
  9. Pagan, Adrian & Ullah, Aman, 1988. "The Econometric Analysis of Models with Risk Terms," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 3(2), pages 87-105, April.
  10. Pelin Ilbas, 2012. "Revealing the preferences of the US Federal Reserve," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(3), pages 440-473, 04.
  11. Laurence M. Ball, 1999. "Policy Rules for Open Economies," NBER Chapters, in: Monetary Policy Rules, pages 127-156 National Bureau of Economic Research, Inc.
  12. de Andrade, Joaquim Pinto & Divino, Jose Angelo, 2005. "Monetary policy of the Bank of Japan--inflation target versus exchange rate target," Japan and the World Economy, Elsevier, Elsevier, vol. 17(2), pages 189-208, April.
  13. 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.
  14. Thomas Lubik & Massimiliano Marzo, 2003. "An Inventory of Simple Monetary Policy Rules in a New Keynesian Macroeconomic Model," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 500, The Johns Hopkins University,Department of Economics.
  15. Nicoletta Batini & Richard Harrison & Stephen P. Millard, 2001. "Monetary policy rules for an open economy," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Mar.
  16. Francisco J. Ruge-Murcia, 2001. "Inflation Targeting Under Asymmetric Preferences," Banco de Espa�a Working Papers 0106, Banco de Espa�a.
  17. Robin, Jean-Marc & Smith, Richard J., 2000. "Tests Of Rank," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 16(02), pages 151-175, April.
  18. Frank Kleibergen & Richard Paap, 2003. "Generalized Reduced Rank Tests using the Singular Value Decomposition," Tinbergen Institute Discussion Papers 03-003/4, Tinbergen Institute.
  19. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  20. Laurence Ball, 1997. "Efficient Rules for Monetary Policy," NBER Working Papers 5952, National Bureau of Economic Research, Inc.
  21. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1750, C.E.P.R. Discussion Papers.
  22. Richard Dennis, 2002. "Exploring the role of the real exchange rate in Australian monetary policy," Working Paper Series 2002-19, Federal Reserve Bank of San Francisco.
  23. A. Robert Nobay & David A. Peel, 2003. "Optimal Discretionary Monetary Policy in a Model of Asymmetric Central Bank Preferences," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(489), pages 657-665, 07.
  24. Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers, C.V. Starr Center for Applied Economics, New York University 98-01, C.V. Starr Center for Applied Economics, New York University.
  25. Lars E. O. Svensson, 2000. "Open-Economy Inflation Targeting," NBER Working Papers 6545, National Bureau of Economic Research, Inc.
  26. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(4), pages 518-29, October.
  27. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, Elsevier, vol. 41(6), pages 1111-1146, June.
  28. DOLADO, J.J. & MARIA-DOLORES, R. & RUGE-MURCIA, Francisco J., 2003. "Nonlinear Monetary Policy Rules: Some New Evidence for the U.S," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 2003-24, Universite de Montreal, Departement de sciences economiques.
  29. Surico, Paolo, 2007. "The Fed's monetary policy rule and U.S. inflation: The case of asymmetric preferences," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 31(1), pages 305-324, January.
  30. Miyao, Ryuzo, 2000. "The Role of Monetary Policy in Japan: A Break in the 1990s?," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 366-384, December.
  31. Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Villani, Mattias, 2007. "Evaluating An Estimated New Keynesian Small Open Economy Model," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6027, C.E.P.R. Discussion Papers.
  32. Hansen, Lars Peter & Heaton, John & Yaron, Amir, 1996. "Finite-Sample Properties of Some Alternative GMM Estimators," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 14(3), pages 262-80, July.
  33. Bullard, James & Mitra, Kaushik, 2002. "Learning about monetary policy rules," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(6), pages 1105-1129, September.
  34. Berkowitz, Jeremy, 2001. "Testing Density Forecasts, with Applications to Risk Management," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 19(4), pages 465-74, October.
  35. Ruge-Murcia, Francisco J., 2004. "The inflation bias when the central bank targets the natural rate of unemployment," European Economic Review, Elsevier, Elsevier, vol. 48(1), pages 91-107, February.
  36. Sophocles Mavroeidis, 2004. "Weak Identification of Forward-looking Models in Monetary Economics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 609-635, 09.
  37. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters, in: Monetary Policy Rules, pages 319-348 National Bureau of Economic Research, Inc.
  38. Cukierman, Alex & Gerlach, Stefan, 2003. "The Inflation Bias Revisited: Theory and Some International Evidence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3761, C.E.P.R. Discussion Papers.
  39. RUGE-MURCIA, Francisco J., 2002. "Does the Barro-Gordon Model Explain the Behavior of US Inflation? a Reexamination of the Empirical Evidence," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 2002-07, Universite de Montreal, Departement de sciences economiques.
  40. Thomas Lubik & Frank Schorfheide, 2003. "Do Central Banks Respond to Exchange Rate Movements? A Structural Investigation," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 505, The Johns Hopkins University,Department of Economics.
  41. Leitemo, Kai & Soderstrom, Ulf, 2005. "Simple monetary policy rules and exchange rate uncertainty," Journal of International Money and Finance, Elsevier, Elsevier, vol. 24(3), pages 481-507, April.
  42. Paolo Surico, 2003. "Asymmetric Reaction Functions for the Euro Area," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 19(1), pages 44-57.
  43. Leitemo, Kai & Roisland, Oistein & Torvik, Ragnar, 2002. " Time Inconsistency and the Exchange Rate Channel of Monetary Policy," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 104(3), pages 391-97, September.
  44. Richard Clarida & Jordi Gali & Mark Gertler, 2001. "Optimal Monetary Policy in Open versus Closed Economies: An Integrated Approach," American Economic Review, American Economic Association, American Economic Association, vol. 91(2), pages 248-252, May.
  45. Diebold, Francis X & Gunther, Todd A & Tay, Anthony S, 1998. "Evaluating Density Forecasts with Applications to Financial Risk Management," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 863-83, November.
  46. Anderson, T W, 1977. "Asymptotic Expansions of the Distributions of Estimates in Simultaneous Equations for Alternative Parameter Sequences," Econometrica, Econometric Society, Econometric Society, vol. 45(2), pages 509-18, March.
  47. Jordi Gal� & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 707-734.
  48. Kenneth Kasa & Helen Popper, 1995. "Monetary policy in Japan: a structural VAR analysis," Pacific Basin Working Paper Series 95-12, Federal Reserve Bank of San Francisco.
  49. Cragg, John G. & Donald, Stephen G., 1997. "Inferring the rank of a matrix," Journal of Econometrics, Elsevier, Elsevier, vol. 76(1-2), pages 223-250.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:37401. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.