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Globalization and Monetary Policy: An Empirical Analysis

  • Arpita Chatterjee

    ()

    (School of Economics, the University of New South Wales)

This paper studies the evolution of comovement in monetary policy of the G-7 countries during the period 1980-2009. I estimate a Taylor rule for each country and use the residuals from the Taylor rule to estimate a Bayesian dynamic latent factor model allowing for common and Europe speci?c components. I quantify the importance of the G-7 factor in explaining the residual of the Taylor rule, and show that the G-7 factor plays a very important role during the period of globalization (1988- 2003). I esimate the time path of the importance of the G-7 factor using rolling sub-samples, and show that both trade-openness and ?nancial integration increase comovement in monetary policy.

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File URL: http://research.economics.unsw.edu.au/RePEc/papers/2013-08.pdf
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Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2013-08.

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Length: 35 pages
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:swe:wpaper:2013-08
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  1. Sutherland, Alan, 2004. "International Monetary Policy Coordination and Financial Market Integration," CEPR Discussion Papers 4251, C.E.P.R. Discussion Papers.
  2. Robert C. Feenstra & Robert E. Lipsey & Haiyan Deng & Alyson C. Ma & Hengyong Mo, 2005. "World Trade Flows: 1962-2000," NBER Working Papers 11040, National Bureau of Economic Research, Inc.
  3. Philip R. Lane & Gian-Maria Milesi-Ferretti, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004," IMF Working Papers 06/69, International Monetary Fund.
  4. Benigno, Gianluca & Benigno, Pierpaolo, 2006. "Designing targeting rules for international monetary policy cooperation," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 473-506, April.
  5. Brian M. Doyle & Jon Faust, 2003. "Breaks in the variability and co-movement of G-7 economic growth," International Finance Discussion Papers 786, Board of Governors of the Federal Reserve System (U.S.).
  6. Otrok, C. & Whiteman, C.H., 1996. "Bayesian Leading Indicators: Measuring and Predicting Economic Conditions in Iowa," Working Papers 96-14, University of Iowa, Department of Economics.
  7. Laurence M. Ball, 1999. "Policy Rules for Open Economies," NBER Chapters, in: Monetary Policy Rules, pages 127-156 National Bureau of Economic Research, Inc.
  8. Ayhan Kose, M. & Otrok, Christopher & Whiteman, Charles H., 2008. "Understanding the evolution of world business cycles," Journal of International Economics, Elsevier, vol. 75(1), pages 110-130, May.
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