Original title: How Does Monetary Policy Change? Evidence on Inflation Targeting Countries
Authors: Baxa, Jaromír ; Horváth, R. ; Vašíček, B.
Document type: Research reports
Year: 2010
Language: eng
Series: IES Working Papers, volume: 26/2010
Abstract: We examine the evolution of monetary policy rules in a group of inflation targeting countries (Australia, Canada, New Zealand, Sweden and the United Kingdom), applying a moment-based estimator in a time-varying parameter model with endogenous regressors. Using this novel flexible framework, our main findings are threefold. First, monetary policy rules change gradually, pointing to the importance of applying a time-varying estimation framework. Second, the interest rate smoothing parameter is much lower than typically reported by previous time-invariant estimates of policy rules. External factors matter for all countries, although the importance of the exchange rate diminishes after the adoption of inflation targeting. Third, the response of interest rates to inflation is particularly strong during periods when central bankers want to break a record of high inflation, such as in the UK or Australia at the beginning of the 1980s.
Keywords: Inflation targeting; Taylor rule; time-varying parameter model
Project no.: CEZ:AV0Z10750506 (CEP), GD402/09/H045 (CEP)
Funding provider: GA ČR

Institution: Institute of Information Theory and Automation AS ČR (web)
Document availability information: Fulltext is available at external website.
External URL: http://library.utia.cas.cz/separaty/2010/E/baxa-0349666.pdf
Original record: http://hdl.handle.net/11104/0189842

Permalink: http://www.nusl.cz/ntk/nusl-41844


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