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"Ex-ante" Taylor rules and expectation forming in emerging markets

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  • Fendel, Ralf
  • Frenkel, Michael
  • Rülke, Jan-Christoph

Abstract

The success of monetary policy in stabilizing inflation depends substantially on its influence on expectation formation of private agents. This paper provides a novel perspective on the expectation forming process of financial markets. Using forecasts for the short-term interest rate, the inflation rate, and output growth for 10 emerging markets in Latin-America, central and eastern Europe, we estimate expected ("ex-ante") Taylor-type rules. We find evidence for significant differences in the expectation formation process in the sense that the well-known Taylor principle fairly holds for only some countries, while for the other countries it does not. The adaption of an explicit inflation targeting regime seems to explain this cross-country differences.

Suggested Citation

  • Fendel, Ralf & Frenkel, Michael & Rülke, Jan-Christoph, 2011. ""Ex-ante" Taylor rules and expectation forming in emerging markets," Journal of Comparative Economics, Elsevier, vol. 39(2), pages 230-244, June.
  • Handle: RePEc:eee:jcecon:v:39:y:2011:i:2:p:230-244
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Armand Fouejieu Azangue, 2014. "Inflation Targeters Do Not Care (Enough) about Financial Stability: A Myth?," Working Papers halshs-01012077, HAL.
    2. José De Gregorio, 2009. "Implementation of Inflation Targets in Emerging Markets," Chapters,in: Monetary Policy Frameworks for Emerging Markets, chapter 3 Edward Elgar Publishing.
    3. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Inflation Targeting and Financial Stability: A Perspective from the Developing World," Working Papers Series 324, Central Bank of Brazil, Research Department.
    4. Dirk Bleich & Ralf Fendel & Jan-Christoph Rülke, 2013. "Monetary Policy and Stock Market Volatility," Economics Bulletin, AccessEcon, vol. 33(3), pages 1669-1680.
    5. Armand Fouejieu,, 2017. "Inflation targeting and financial stability in emerging markets," Economic Modelling, Elsevier, vol. 60(C), pages 51-70.
    6. Jinill Kim & Seth Pruitt, 2017. "Estimating Monetary Policy Rules When Nominal Interest Rates Are Stuck at Zero," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(4), pages 585-602, June.
    7. repec:bla:ecorec:v:93:y:2017:i:300:p:67-88 is not listed on IDEAS
    8. Armand FOUEJIEU AZANGUE, 2013. "Inflation Targeters Do Not Care (Enough) about Financial Stability: A Myth? Investigation on a Sample of Emerging Market Economies," LEO Working Papers / DR LEO 2248, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    9. Maciej Ryczkowski, 2016. "Poland as an inflation nutter:The story of successful output stabilization," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics, vol. 34(2), pages 363-392.

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