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Output sensitivity of monetary policy and macroeconomic performance


  • Michael Berlemann
  • Kai Hielscher


Employing dynamic panel estimation techniques we derive an empirical measure of central banks' degree of output sensitivity. When relating this measure to macroeconomic outcome variables, we find that a decrease in output sensitivity results in larger business-cycle movements and higher medium-term inflation uncertainty. However, the level of inflation is decreased and the output gap is increased.

Suggested Citation

  • Michael Berlemann & Kai Hielscher, 2012. "Output sensitivity of monetary policy and macroeconomic performance," Applied Economics Letters, Taylor & Francis Journals, vol. 19(15), pages 1505-1509, October.
  • Handle: RePEc:taf:apeclt:v:19:y:2012:i:15:p:1505-1509 DOI: 10.1080/13504851.2011.637885

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    References listed on IDEAS

    1. David-Jan Jansen & Jakob de Haan, 2005. "Is a Word to the Wise Indeed Enough? ECB Statements and the Predictibility of Interest Rate Decisions," DNB Working Papers 075, Netherlands Central Bank, Research Department.
    2. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
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    4. Batini, Nicoletta & Nelson, Edward, 2001. "The Lag from Monetary Policy Actions to Inflation: Friedman Revisited," International Finance, Wiley Blackwell, vol. 4(3), pages 381-400, Winter.
    5. Milton Friedman, 1961. "The Lag in Effect of Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 69, pages 447-447.
    6. Sijben, Jacques J, 1996. "Rules versus Discretion in Monetary Policy: Revisited," Australian Economic Papers, Wiley Blackwell, vol. 35(66), pages 156-182, June.
    7. Bennett T. McCallum, 1993. "Specification and Analysis of a Monetary Policy Rule for Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 11(2), pages 1-45, December.
    8. Gerlach, Stefan & Schnabel, Gert, 2000. "The Taylor rule and interest rates in the EMU area," Economics Letters, Elsevier, vol. 67(2), pages 165-171, May.
    9. Bennett T. McCallum, 2001. "Should Monetary Policy Respond Strongly to Output Gaps?," American Economic Review, American Economic Association, vol. 91(2), pages 258-262, May.
    10. Gerlach, Stefan, 2004. "Interest Rate Setting by the ECB: Words and Deeds," CEPR Discussion Papers 4775, C.E.P.R. Discussion Papers.
    11. David-Jan Jansen & Jakob de Haan, 2006. "Does ECB Communication Help in Predicting its Interest Rate Decisions?," CESifo Working Paper Series 1804, CESifo Group Munich.
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