IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Monetary Regime Change and Business Cycles

  • Cúrdia, Vasco

    (Macroeconomic and Monetary Studies Function)

  • Finocchiaro, Daria

    ()

    (Research Department, Central Bank of Sweden)

This paper analyzes to what extent changes in monetary policy regimes influence the business cycle in a small open economy and investigates the impact of policy breaks on the estimation procedure. We estimate a DSGE model on Swedish data, explicitly taking into account the monetary regime change in 1993, from exchange rate targeting to inflation targeting. The results suggest that monetary policy reacted strongly to exchange rate movements in the former, and mostly to inflation in the latter. The external sector plays an important role in the economy and the international transmission mechanism is significantly affected by the choice of exchange rate regime. A counterfactual experiment that applies the inflation targeting policy rule on the disturbances from the exchange rate targeting period suggests that such a policy would have led to higher output and employment, but also to a depreciated currency, higher inflation and a more volatile economy. We also show evidence that ignoring the break in the estimation leads to spurious results for both the parameters associated with monetary policy as well as those that are policy-independent.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.riksbank.com/upload/Dokument_riksbank/Kat_publicerat/WorkingPapers/2010/wp241.pdf
Our checks indicate that this address may not be valid because: 404 Not Found (http://www.riksbank.com/upload/Dokument_riksbank/Kat_publicerat/WorkingPapers/2010/wp241.pdf [301 Moved Permanently]--> http://www.riksbank.se/en/upload/Dokument_riksbank/Kat_publicerat/WorkingPapers/2010/wp241.pdf). If this is indeed the case, please notify (Lena Löfgren)


Download Restriction: no

Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 241.

as
in new window

Length: 62 pages
Date of creation: 01 Apr 2010
Date of revision:
Handle: RePEc:hhs:rbnkwp:0241
Contact details of provider: Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Phone: 08 - 787 00 00
Fax: 08-21 05 31
Web page: http://www.riksbank.com/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Benigno, Pierpaolo, 2001. "Price Stability with Imperfect Financial Integration," CEPR Discussion Papers 2854, C.E.P.R. Discussion Papers.
  2. E.O. Svensson, Lars, 1994. "Why exchange rate bands? : Monetary independence in spite of fixed exchange rates," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 157-199, February.
  3. Adolfson, Malin & Laseen, Stefan & Linde, Jesper & Villani, Mattias, 2007. "Bayesian estimation of an open economy DSGE model with incomplete pass-through," Journal of International Economics, Elsevier, vol. 72(2), pages 481-511, July.
  4. Jesper Lindé & Marianne Nessén & Ulf Söderström, 2009. "Monetary policy in an estimated open-economy model with imperfect pass-through," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 14(4), pages 301-333.
  5. Jesper Lindé, 2004. "Swedish Postwar Business Cycles: Generated Abroad or at Home?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(4), pages 623-645, December.
  6. Philip R. Lane & Gian Milesi-Ferretti, 2001. "Long-Term Capital Movements," NBER Working Papers 8366, National Bureau of Economic Research, Inc.
    • Philip R. Lane & Gian Maria Milesi-Ferretti, 2002. "Long-Term Capital Movements," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 73-136 National Bureau of Economic Research, Inc.
  7. Belaygorod, Anatoliy & Dueker, Michael, 2009. "Indeterminacy, change points and the price puzzle in an estimated DSGE model," Journal of Economic Dynamics and Control, Elsevier, vol. 33(3), pages 624-648, March.
  8. Sungbae An & Frank Schorfheide, 2006. "Bayesian analysis of DSGE models," Working Papers 06-5, Federal Reserve Bank of Philadelphia.
  9. Gottfries, N., 1999. "Market Shares, Financial Constraints, and Pricing Behavior in the Export Market," Papers 1999:15, Uppsala - Working Paper Series.
  10. Jesús Fernández-Villaverde & Juan F Rubio-Ramírez, 2007. "How Structural Are Structural Parameters?," Levine's Bibliography 843644000000000057, UCLA Department of Economics.
  11. Apel, Mikael & Friberg, Richard & Hallsten, Kerstin, 2005. "Microfoundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 313-38, April.
  12. Troy Davig & Eric M. Leeper, 2006. "Generalizing the Taylor Principle," Caepr Working Papers 2006-001, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  13. Nooman Rebei & Steven Ambler & Ali Dib, 2004. "Optimal Taylor Rules in an Estimated Model of a Small Open Economy," Econometric Society 2004 North American Summer Meetings 627, Econometric Society.
  14. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
  15. Johansson, Kerstin, 1998. "Exports in the Econometric Model KOSMOS," Working Paper 62, National Institute of Economic Research.
  16. Sungbae An & Frank Schorfheide, 2007. "Bayesian Analysis of DSGE Models—Rejoinder," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 211-219.
  17. Kollmann, Robert, 2001. "The exchange rate in a dynamic-optimizing business cycle model with nominal rigidities: a quantitative investigation," Journal of International Economics, Elsevier, vol. 55(2), pages 243-262, December.
  18. Alejandro Justiniano & Bruce Preston, 2006. "Can Structural Small Open Economy Models Account For The Influence Of Foreign Disturbances?," CAMA Working Papers 2006-12, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  19. Thomas Lubik & Frank Schorfheide, 2002. "Testing for Indeterminacy:An Application to U.S. Monetary Policy," Economics Working Paper Archive 480, The Johns Hopkins University,Department of Economics, revised Jun 2003.
  20. Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Villani, Mattias, 2007. "Evaluating An Estimated New Keynesian Small Open Economy Model," Working Paper Series 203, Sveriges Riksbank (Central Bank of Sweden).
  21. Giorgio Primiceri & Alejandro Justiniano, 2006. "The Time Varying Volatility of Macroeconomic Fluctuations," 2006 Meeting Papers 353, Society for Economic Dynamics.
  22. Lindberg, H. & Soderlind, P., 1991. "Testing the Basic Target Zone Model on Swedish Data," Papers 488, Stockholm - International Economic Studies.
  23. repec:dgr:kubcen:199667 is not listed on IDEAS
  24. Francesco Bianchi, 2009. "Regime Switches, Agents’ Beliefs, and Post-World War II U.S. Macroeconomic Dynamics," 2009 Meeting Papers 198, Society for Economic Dynamics.
  25. Lubik, Thomas A. & Schorfheide, Frank, 2007. "Do central banks respond to exchange rate movements? A structural investigation," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1069-1087, May.
  26. Alejandro Justiniano & Bruce Preston, 2009. "Monetary policy and uncertainty in an empirical small open economy model," Working Paper Series WP-09-21, Federal Reserve Bank of Chicago.
  27. Lindberg, Hans & Soderlind, Paul, 1994. "Testing the basic target zone model on Swedish data 1982-1990," European Economic Review, Elsevier, vol. 38(7), pages 1441-1469, August.
  28. Fabio Ghironi, 2000. "Towards New Open Economy Macroeconometrics," Boston College Working Papers in Economics 469, Boston College Department of Economics.
  29. Friberg, Richard & Wilander, Fredrik, 2007. "Price Setting Transactions and the Role of Denominating Currency in FX Markets," Working Paper Series 201, Sveriges Riksbank (Central Bank of Sweden).
  30. Friberg, Kent, 2003. "Intersectoral Wage Linkages in Sweden," Working Paper Series 158, Sveriges Riksbank (Central Bank of Sweden).
  31. Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Closing Small Open Economy Models," NBER Working Papers 9270, National Bureau of Economic Research, Inc.
  32. Lindberg, Hans & Soderlind, Paul & Svensson, Lars E O, 1993. "Devaluation Expectations: The Swedish Krona 1985-92," Economic Journal, Royal Economic Society, vol. 103(420), pages 1170-79, September.
  33. Betts, Caroline & Devereux, Michael B., 2000. "Exchange rate dynamics in a model of pricing-to-market," Journal of International Economics, Elsevier, vol. 50(1), pages 215-244, February.
  34. Jordi Galí, 2004. "On The Role of Technology Shocks as a Source of Business Cycles: Some New Evidence," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 372-380, 04/05.
  35. Eo, Yunjong, 2008. "Bayesian Analysis of DSGE Models with Regime Switching," MPRA Paper 13910, University Library of Munich, Germany, revised 11 Feb 2009.
  36. Bergin, Paul R., 2003. "Putting the 'New Open Economy Macroeconomics' to a test," Journal of International Economics, Elsevier, vol. 60(1), pages 3-34, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:hhs:rbnkwp:0241. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lena Löfgren)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.