Inflation targeting in a small open economy: Empirical results for Switzerland
This paper extends McCallum?s (1987) nominal targeting rule to a small open economy by allowing for feedback from the exchange rate. Instead of setting parameters in a McCallum-type targeting rule and simulating, the parameters are estimated using a markov switching model. We argue that a model of discrete parameter changes should be adept at capturing sudden changes in policy regime, such as changes in the degree to which monetary policy admits feedback from the exchange rate. We examine the legitimacy of an inflation targeting rule with occasional exchangerate feedback to describe Swiss monetary policy over the past twenty years.
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- Bennett T. McCallum, 1987. "The case for rules in the conduct of monetary policy: a concrete example," Economic Review, Federal Reserve Bank of Richmond, issue Sep, pages 10-18.
- Bennett T. McCallum, 1993.
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- Ben Bernanke & Frederic Mishkin, 1992. "Central Bank Behavior and the Strategy of Monetary Policy: Observations From Six Industrialized Countries," NBER Working Papers 4082, National Bureau of Economic Research, Inc.
- Mccallum, Bennet T., 1988. "Robustness properties of a rule for monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 173-203, January.
- Christian Vital & David L. Mengle, 1988. "SIC: Switzerland's new electronic interbank payment system," Economic Review, Federal Reserve Bank of Richmond, issue Nov, pages 12-27.
- Bennett T. McCallum, 1994. "Monetary Policy Rules and Financial Stability," NBER Working Papers 4692, National Bureau of Economic Research, Inc.
- Kim, Chang-Jin, 1994. "Dynamic linear models with Markov-switching," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 1-22.
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