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Assessing monetary rules performance across EMU countries

Author Info

Listed author(s):
  • Carlo Altavilla

    (KU Leuven, Belgium)

Abstract

The topic covered in this paper is the performance of different monetary policy rules used as guidelines in practical policy making. To this end, different rules are evaluated using alternative econometrics techniques. A comparative analysis is made of the ability of the rules to correspond to the historical central bank behaviour and of the volatility of output, inflation and interest rate changes that they imply. The study is conducted of the EMU countries. The results suggest that simple rules perform quite well and that the advantages obtained from adopting an optimal control-based rule are not so great. Moreover, the addition of a forward-looking dimension and of an interest rate smoothing term in the reaction function seems to improve the performance of the rules. Copyright © 2003 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.199
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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 8 (2003)
Issue (Month): 2 ()
Pages: 131-151

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Handle: RePEc:ijf:ijfiec:v:8:y:2003:i:2:p:131-151
DOI: 10.1002/ijfe.199
Contact details of provider: Web page: http://www.interscience.wiley.com/jpages/1076-9307/

Order Information: Web: http://jws-edcv.wiley.com/jcatalog/JournalsCatalogOrder/JournalOrder?PRINT_ISSN=1076-9307

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Find related papers by JEL classification:
  • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
  • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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  1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
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  3. Fuhrer, Jeffrey C, 1997. "The (Un)Importance of Forward-Looking Behavior in Price Specifications," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 338-350, August.
  4. Julio J. Rotemberg & Michael Woodford, 1999. "Interest Rate Rules in an Estimated Sticky Price Model," NBER Chapters,in: Monetary Policy Rules, pages 57-126 National Bureau of Economic Research, Inc.
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  12. Martin Eichenbaum & Charles Evans, 1992. "Some empirical evidence on the effects of monetary policy shocks on exchange rates," Working Paper Series, Macroeconomic Issues 92-32, Federal Reserve Bank of Chicago.
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  18. McCallum, Bennett T, 2000. "The Present and Future of Monetary Policy Rules," International Finance, Wiley Blackwell, vol. 3(2), pages 273-286, July.
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  20. Michael Woodford, 2000. "Pitfalls of Forward-Looking Monetary Policy," American Economic Review, American Economic Association, vol. 90(2), pages 100-104, May.
  21. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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Cited by:

  1. Ho-Chuan Huang & Shu-Chin Lin, 2006. "Time-varying discrete monetary policy reaction functions," Applied Economics, Taylor & Francis Journals, vol. 38(4), pages 449-464.
  2. Marc-Alexandre Sénégas, 2002. "La politique monétaire face à l'incertitude : un survol méthodologique des contributions relatives à la zone euro," Revue d'Économie Financière, Programme National Persée, vol. 65(1), pages 177-200.
  3. Altavilla, Carlo & Ciccarelli, Matteo, 2009. "The effects of monetary policy on unemployment dynamics under model uncertainty: evidence from the US and the euro area," Working Paper Series 1089, European Central Bank.
  4. Leith, Campbell & Wren-Lewis, Simon, 2009. "Taylor rules in the open economy," European Economic Review, Elsevier, vol. 53(8), pages 971-995, November.
  5. Orlowski, Lucjan T., 2010. "Monetary policy rules for convergence to the Euro," Economic Systems, Elsevier, vol. 34(2), pages 148-159, June.
  6. Gerdesmeier, Dieter & Roffia, Barbara & Eleftheriou, Maria, 2006. "Monetary policy rules in the pre-EMU era: Is there a common rule?," Working Paper Series 659, European Central Bank.
  7. António Afonso & Raquel Balhote, 2014. "Interactions between Monetary Policy and Fiscal Policy," Working Papers Department of Economics 2014/13, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  8. J. Kilponen & Marc-Alexandre Sénégas & J. Vilmunen, 2006. "Bayesian versus robust control approach towards parameter uncertainty in monetary policymaking: how close are the outcomes? Some illustrating evidence from the EMU economies," Post-Print hal-00150522, HAL.
  9. Carlo Altavilla & Matteo Ciccarelli, 2008. "Inflation models, optimal monetary policy and uncertain unemployment dynamics: Evidence from the US and the euro area," Discussion Papers 8_2008, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.

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