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Credibility of Monetary Policy in Four Accession Countries: A Markov Regime-Switching Approach

  • Philip Arestis
  • Kostas Mouratidis

The aim of this study is to estimate the credibility of monetary policy in four accession countries (the Czech Republic, Hungary, Poland, and the Slovak Republic), based on the Markov regime-switching (MRS) framework. We utilize the theoretical proposition that in the conduct of monetary policy, there is uncertainty in terms of the type of central bank. We measure this uncertainty as a deviation of monetary policy from a target level. We utilize for the target level the differential between the interest rates of the four individual accession countries and a "synthetic" interest rate of 11 EMU member countries.

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Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_371.

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Date of creation: Feb 2003
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Handle: RePEc:lev:wrkpap:wp_371
Contact details of provider: Web page: http://www.levyinstitute.org

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  1. Jeanne, Olivier & Masson, Paul R, 1998. "Currency Crises, Sunspots and Markov-Switching Regimes," CEPR Discussion Papers 1990, C.E.P.R. Discussion Papers.
  2. Allan Drazen & Paul R. Masson, 1993. "Credibility of Policies versus Credibility of Policymakers," NBER Working Papers 4448, National Bureau of Economic Research, Inc.
  3. Garcia, Rene, 1998. "Asymptotic Null Distribution of the Likelihood Ratio Test in Markov Switching Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 763-88, August.
  4. David Backus & John Driffill, 1984. "Inflation and Reputation," Working Papers 560, Queen's University, Department of Economics.
  5. Andrew Ang & Geert Bekaert, 1998. "Regime Switches in Interest Rates," NBER Working Papers 6508, National Bureau of Economic Research, Inc.
  6. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
  7. Howitt, P. & Mcfee, R.P., 1990. "Animal Spirits," UWO Department of Economics Working Papers 9005, University of Western Ontario, Department of Economics.
  8. Caporale, Guglielmo Maria & Kalyvitis, Sarantis & Pittis, Nikitas, 1996. "Interest rate convergence, capital controls, risk premia and foreign exchange market efficiency in the EMS," Journal of Macroeconomics, Elsevier, vol. 18(4), pages 693-714.
  9. Benjamin M. Friedman & David I. Laibson, 1989. "Economic Implications of Extraordinary Movements in Stock Prices," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(2), pages 137-190.
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