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Measuring Monetary Policy Interdependence

  • Paul Bergin
  • Oscar Jorda

    (Department of Economics, University of California Davis)

This paper measures the degree of monetary policy interdependence between major industrialized countries from a new perspective. The analysis uses a special data set on central bank issued policy rate targets for 14 OECD countries. Methodologically, our approach is novel in that we separately examine monetary interdependence due to (1) the coincidence in time of when policy actions are executed from (2) the nature and magnitude of the policy adjustments made. The first of these elements requires that the timing of events be modeled with a dynamic discrete duration design. The discrete nature of the policy rate adjustment process that characterizes the second element is captured with an ordered response model. The results indicate there is significant policy interdependence among these 14 countries during the 1980-1998 sample period. This is especially true for a number of European countries which appeared to respond to German policy during our sample period. A number of other countries appeared to respond to U.S. policy, though this number is smaller than that suggested in preceding studies. Moreover, the policy harmonization we find appears to work through channels other than formal coordination agreements.

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File URL: http://wp.econ.ucdavis.edu/06-9.pdf
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Paper provided by University of California, Davis, Department of Economics in its series Working Papers with number 69.

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Length: 37
Date of creation: 01 Jan 2001
Date of revision:
Handle: RePEc:cda:wpaper:06-9
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  1. Rudebusch, Glenn D, 1998. "Do Measures of Monetary Policy in a VAR Make Sense?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 907-31, November.
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  5. Rudebusch, Glenn D, 1998. "Do Measures of Monetary Policy in a VAR Make Sense? A Reply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 943-48, November.
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  9. Batten, Dallas S & Ott, Mack, 1985. "The Interrelationship of Monetary Policies under Floating Exchange Rates: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(1), pages 103-10, February.
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  14. Sims, Christopher A, 1998. "Comment on Glenn Rudebusch's "Do Measures of Monetary Policy in a VAR Make Sense?"," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 933-41, November.
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  18. DeGennaro, Ramon P & Kunkel, Robert A & Lee, Junsoo, 1994. "Modeling International Long-Term Interest Rates," The Financial Review, Eastern Finance Association, vol. 29(4), pages 577-97, November.
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  24. Julio Nogués & Martín Grandes, 2001. "COUNTRY RISK: Economic Policy, Contagion Effect or Political noise?," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 125-162, May.
  25. John Thornton & Alicia García-Herrero, 1996. "Additional Evidenceon Ems Interest Rate Linkages," IMF Working Papers 96/115, International Monetary Fund.
  26. Katsimbris, George M & Miller, Stephen M, 1993. "Interest Rate Linkages within the European Monetary System: Further Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(4), pages 771-79, November.
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