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Asymmetric monetary policy rules for open economies: Evidence from four countries

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  • Caglayan, Mustafa
  • Jehan, Zainab
  • Mouratidis, Kostas

Abstract

This study presents an analytical framework to examine the policy reaction function of a central bank in an open economy context while allowing for asymmetric preferences. The paper then empirically examines the policy rule obtained from this framework using quarterly data for the US, Canada, Japan, and the UK. The results, based on GMM approach, provide evidence that domestic policy is affected by changes in the foreign interest rate and exchange rate. We also provide evidence of the presence of asymmetries in response to the inflation rate and output gap for all the sample countries.

Suggested Citation

  • Caglayan, Mustafa & Jehan, Zainab & Mouratidis, Kostas, 2012. "Asymmetric monetary policy rules for open economies: Evidence from four countries," MPRA Paper 37401, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:37401
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    2. Caporale, Guglielmo Maria & Helmi, Mohamad Husam & Çatık, Abdurrahman Nazif & Menla Ali, Faek & Akdeniz, Coşkun, 2018. "Monetary policy rules in emerging countries: Is there an augmented nonlinear taylor rule?," Economic Modelling, Elsevier, vol. 72(C), pages 306-319.
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    6. Trung Thanh Bui & Gábor Dávid Kiss, 2020. "Asymmetry in the Reaction Function of Monetary Policy in Emerging Economies," Public Finance Quarterly, State Audit Office of Hungary, vol. 65(2), pages 210-224.

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    More about this item

    Keywords

    Monetary policy rule; asymmetric preferences; open economy;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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