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Semi-Parametric Estimates of Taylor Rules for a Small, Open Economy – Evidence from Switzerland

Author

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  • Nitschka Thomas

    (Swiss National Bank,Bern, Switzerland)

  • Markov Nikolay

    (Pictet Asset Management,‎Geneva, Switzerland)

Abstract

This article estimates the policy reaction function of the Swiss National Bank (SNB) using real-time internal inflation forecasts and output gap estimates from 2000 to 2012. We analyze potential nonlinearities of policy rate responses to economic fundamentals using a novel semiparametric approach. We find a linear response of the SNB’s policy rate to inflation forecasts but a strong nonlinear response of the policy rate to the output gap and exchange rate changes. This finding suggests that the SNB reacts to extreme movements of these variables if they become a concern for price stability and economic activity.

Suggested Citation

  • Nitschka Thomas & Markov Nikolay, 2016. "Semi-Parametric Estimates of Taylor Rules for a Small, Open Economy – Evidence from Switzerland," German Economic Review, De Gruyter, vol. 17(4), pages 478-490, December.
    • Handle: RePEc:bpj:germec:v:17:y:2016:i:4:p:478-490
    DOI: 10.1111/geer.12080
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    Cited by:

    1. Fabian Fink & Lukas Frei & Thomas Maag & Tanja Zehnder, 2024. "The Impact of SNB Monetary Policy on the Swiss Franc and Longer-Term Interest Rates," International Journal of Central Banking, International Journal of Central Banking, vol. 20(1), pages 53-92, February.
    2. Christina Anderl & Guglielmo Maria Caporale, 2024. "Time-varying parameters in monetary policy rules: a GMM approach," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 51(9), pages 148-176, January.

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