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

  • Fendel, Ralf
  • Frenkel, Michael
  • Rülke, Jan-Christoph
Registered author(s):

    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.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0147596711000023
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    Article provided by Elsevier in its journal Journal of Comparative Economics.

    Volume (Year): 39 (2011)
    Issue (Month): 2 (June)
    Pages: 230-244

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    Handle: RePEc:eee:jcecon:v:39:y:2011:i:2:p:230-244
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622864

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