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Is Monetary Policy in New Members States Asymmetric?

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  • Borek Vasicek

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Abstract

Estimated Taylor rules became popular as a description of monetary policy conduct. There are numerous reasons why real monetary policy can be asymmetric and estimated Taylor rule nonlinear. This paper tests whether monetary policy can be described as asymmetric in three new European Union (EU) members (the Czech Republic, Hungary and Poland), which apply an inflation targeting regime. Two different empirical frameworks are used: (i) a Generalized Method of Moments (GMM) estimation of models that allow discrimination between the sources of potential policy asymmetry but are conditioned by specific underlying relations (Dolado et al., 2004, 2005; Surico, 2007a,b); and (ii) a flexible framework of sample splitting where nonlinearity enters via a threshold variable and monetary policy is allowed to switch between regimes (Hansen, 2000; Caner and Hansen, 2004). We find generally little evidence for asymmetric policy driven by nonlinearities in economic systems, some evidence for asymmetric preferences and some interesting evidence on policy switches driven by the intensity of financial distress in the economy.

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Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp1005.

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Length: pages
Date of creation: 01 Dec 2010
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Handle: RePEc:wdi:papers:2010-1005

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Keywords: monetary policy; inflation targeting; nonlinear Taylor rules; threshold estimation;

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Cited by:
  1. Anna Sznajderska, 2012. "On asymmetric effects in a monetary policy rule. The case of Poland," National Bank of Poland Working Papers, National Bank of Poland, Economic Institute 125, National Bank of Poland, Economic Institute.
  2. Sushanta Mallick & Ricardo Sousa, 2013. "Commodity Prices, Inflationary Pressures, and Monetary Policy: Evidence from BRICS Economies," Open Economies Review, Springer, Springer, vol. 24(4), pages 677-694, September.
  3. Neuenkirch, Matthias, 2014. "Are public preferences reflected in monetary policy reaction functions?," Journal of Macroeconomics, Elsevier, Elsevier, vol. 40(C), pages 60-68.

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