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Reviewing monetary policy inertia and its effects: The fractional integration approach for an emerging economy

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  • Moreira, Ricardo Ramalhete
  • Monte, Edson Zambon

Abstract

This paper addressed the monetary policy inertia of a relevant emerging economy based on the fractional integration approach (Geweke and Porter-Hudak, 1983; Baillie et al. 1996), so that we avoided the potential spurious estimates for such an inertia that can be caused by adopting conventional unit root tests, which were usually applied to the related literature. We thus confirmed the hypothesis of a high monetary policy inertia (Clarida et al., 1999), even after controlling for long memory in time series. Furthermore, we identified a positive relationship between inflationary expectations and the inertial component. It means that, under an inflation targeting regime, central banks should adjust both the basic interest rate and its inertial path in order to accomplish the inflation target over time.

Suggested Citation

  • Moreira, Ricardo Ramalhete & Monte, Edson Zambon, 2020. "Reviewing monetary policy inertia and its effects: The fractional integration approach for an emerging economy," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 34-41.
    • Handle: RePEc:eee:quaeco:v:78:y:2020:i:c:p:34-41
    DOI: 10.1016/j.qref.2020.05.006
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    Cited by:

    1. Masciandaro, Donato, 2022. "Independence, conservatism, and beyond: Monetary policy, central bank governance and central banker preferences (1981–2021)," Journal of International Money and Finance, Elsevier, vol. 122(C).
    2. Donato Masciandaro, 2021. "Central Bank Governance in Monetary Policy Economics (1981-2020)," BAFFI CAREFIN Working Papers 21153, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.

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    More about this item

    Keywords

    Monetary policy inertia; Taylor rule; Fractional integration; Brazil;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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