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Monetary Policy Under Discretion Or Commitment? -An Empirical Study

  • Fromlet, Pia

    ()

    (Department of Economics)

Registered author(s):

    In this paper, I investigate the monetary policy of five industrialized countries which have had explicit inflation targets for more than 15 years. Considering the case of discretionary policy as well as commitment, I estimate two first order conditions. The results support the theory of flexible in‡ation targeting under discretion for the United Kingdom. For New Zealand, the results under discretion suggests that monetary policymakers have been leaning with the wind rather than against the wind. The central banks of Canada, Sweden, and Australia have behaved in line with the theory of flexible in‡ation targeting under commitment.

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    File URL: http://uu.diva-portal.org/smash/get/diva2:621061/FULLTEXT01.pdf
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    Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2013:8.

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    Length: 57 pages
    Date of creation: 26 Apr 2013
    Date of revision:
    Handle: RePEc:hhs:uunewp:2013_008
    Contact details of provider: Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
    Phone: + 46 18 471 25 00
    Fax: + 46 18 471 14 78
    Web page: http://www.nek.uu.se/
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    1. Athanasios Orphanides & Simon van Norden, 2002. "The Unreliability of Output-Gap Estimates in Real Time," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 569-583, November.
    2. Favero, Carlo A & Rovelli, Riccardo, 2003. " Macroeconomic Stability and the Preferences of the Fed: A Formal Analysis, 1961-98," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(4), pages 545-56, August.
    3. Richard Paap & Frank Kleibergen, 2004. "Generalized Reduced Rank Tests using the Singular Value Decomposition," Econometric Society 2004 Australasian Meetings 195, Econometric Society.
    4. Olivier J. Blanchard & Jordi Galí, 2005. "Real wage rigidities and the New Keynesian model," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
    5. Glenn Otto & Graham Voss, 2009. "Strict and Flexible Inflation Forecast Targets: An Empirical Investigation," Department Discussion Papers 0902, Department of Economics, University of Victoria.
    6. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316, June.
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