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Asymmetric Taylor reaction functions of the ECB: An approach depending on the state of the economy

  • Klose, Jens

We introduce a new approach to estimate asymmetric Taylor reaction functions where asymmetries depend crucially on the state of the economy which is in the Taylor rule framework the combination of inflation and output deviations. Thus we categorize the sample into four subsamples which correspond to all possible combinations concerning inflation and output deviations. Moreover we introduce a quadratic term of inflation and the output gap in the estimation equation for each state in order to capture possible non-linearities within each state. The approach is tested using data for the ECB because the ECB has communicated an explicit inflation target.

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Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 22 (2011)
Issue (Month): 2 (August)
Pages: 149-163

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Handle: RePEc:eee:ecofin:v:22:y:2011:i:2:p:149-163
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  12. Domenico Giannone & Jérôme Henry & Magdalena Lalik & Michèle Modugno, 2010. "An Area Wide Real Time Data Base for the Euro Area," Working Papers ECARES ECARES 2010-026, ULB -- Universite Libre de Bruxelles.
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  16. Gerdesmeier, Dieter & Roffia, Barbara, 2004. "The relevance of real-time data in estimating reaction functions for the Euro area," Frankfurt School - Working Paper Series 56, Frankfurt School of Finance and Management.
  17. 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, vol. 49(2), pages 485-503, February.
  18. Dolado, Juan J. & María-Dolores, Ramón & Naveira Barrero, Manuel, 2000. "Asymmetries In Monetary Policy Rules: Evidence For Four Central Banks," CEPR Discussion Papers 2441, C.E.P.R. Discussion Papers.
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  29. repec:rwi:repape:0166 is not listed on IDEAS
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