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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- Ben Bernanke & Frederic Mishkin, 1992.
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in: NBER Macroeconomics Annual 1992, Volume 7, pages 183-238
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"Dynamic Linear Models with Markov-Switching,"
91-8, York (Canada) - Department of Economics.
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Monetary and Economic Studies,
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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.
- 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.
- Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
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