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Characterizing monetary and fiscal policy rules and interactions when commodity prices matter

Listed author(s):
  • Chuku Chuku
  • Paul Middleditch

Using conventional rules to characterize policy behaviour in emerging market economies requires innovations capable of capturing distinctive structural characteristics. We examine the extent to which commodity price fluctuations matter for monetary and fiscal policy formulation in high primary commodity export economies. Markov mixture specifications of monetary and fiscal policy rules stylized to account for commodity price slacks are estimated using specifically designed Bayesian techniques. We find that policy authorities indeed respond to commodity price slacks but with variations depending on the policy regime in place and country. The results hold implications for the correct specification of policy rules and interactions in DSGE models for such economies.

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Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 222.

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Length: 43 pages
Date of creation: 2016
Handle: RePEc:man:cgbcrp:222
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