scholarly journals Monetary policy rule for Poland – results for various specifactions

2011 ◽  
Vol 2 (3) ◽  
pp. 5-21 ◽  
Author(s):  
Paweł Baranowski
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Monetary Authority ◽  
Output Gap ◽  
Reaction Function ◽  
Policy Rule ◽  
Policy Rules ◽  
Monetary Policy Rules ◽  
Monetary Policy Rule ◽  
The Interest Rate

The aim of the paper is to analyse monetary policy rules for Poland. We estimate models based on the proposition of Taylor (1993), augmented with interest rate smoothing. We deal with the case of instantaneous as well as forward-looking relationship between interest rate and inflation. In the latter case, the proposition of data-rich reaction function (Bernanke and Boivin, 2003) was also considered. The evidence show that Polish monetary authority reaction to inflation is strong, contrary to the output gap. In addition, we found strong interest smoothing, which implies time-distributed response of the interest rate.

Taking the European Central Bank to the Data

2005 ◽  
Vol 54 (1) ◽  
Author(s):  
Ralf Fendel ◽  
Michael Frenkel
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Target Range ◽  
Policy Rule ◽  
Real Activity ◽  
Policy Rules ◽  
Monetary Policy Rules ◽  
Monetary Policy Rule ◽  
Inflation Targets ◽  
The Interest Rate

AbstractThe paper discusses the conduct of monetary policy of the ECB. We estimate monetary policy rules for the sample period 1999 through 2004. The results are in line with the change of the strategy the ECB recently announced. The implied inflation targets that are extracted from the regressions are close to the target range that the ECB has formulated. We also find that the interest rate setting behavior of the ECB is affected by M3 growth as a leading indicator for future inflation and real activity but not as an independent argument of the monetary policy rule. Furthermore, we validate the ECB’s announcement of no explicit exchange rate target beside the fact that the exchange rate serves as an indicator for future inflation.

A Review of Monetary Policy Rules

2001 ◽  
Vol 39 (2) ◽  
pp. 562-566 ◽  
Author(s):  
Christopher A Sims
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Taylor Rule ◽  
Real Output ◽  
Policy Rule ◽  
Policy Rules ◽  
Monetary Policy Rules ◽  
John Taylor

This article reviews Monetary Policy Rules, edited by John Taylor. The book evaluates the Taylor rule, a policy rule that specifies changes in the central bank's interest rate according to what is happening to two variables, real output and inflation. Questions are raised about (a) how well the models fit the data; (b) the validity of the assumption that there has been clear improvement in monetary policy; and (c) the rule's microfoundations.

scholarly journals DO HETEROGENEOUS EXPECTATIONS CONSTITUTE A CHALLENGE FOR POLICY INTERACTION?

2018 ◽  
Vol 22 (8) ◽  
pp. 2107-2140 ◽  
Author(s):  
Emanuel Gasteiger
Keyword(s):  
Monetary Policy ◽  
Adaptive Learning ◽  
Policy Rule ◽  
Adaptive Expectations ◽  
Policy Regime ◽  
Policy Rules ◽  
Monetary Policy Rules ◽  
Policy Interaction ◽  
Policy Arrangements ◽  
Monetary Policy Rule

Yes, indeed; at least for macroeconomic policy interaction. We examine a Neo-Classical economy and provide the conditions for policy arrangements to successfully stabilize the economy when agents have either rational or adaptive expectations. For a contemporaneous-data monetary policy rule, the monetarist solution is unique and stationary under a passive fiscal/active monetary policy regime if monetary policy appropriately incorporates expectational heterogeneity. In contrast, the active fiscal/passive monetary policy regime's fiscalist solution is prone to explosiveness due to empirically plausible expectational heterogeneity. Nevertheless, this can be a well-defined, rather orthodox equilibrium. For operational monetary policy rules, only the results for the fiscalist solution prevail. Moreover, our results are plausible from an adaptive learning viewpoint.

scholarly journals The Dependence of China’s Monetary Policy Rules on Interest Rate Regimes: Empirical Analysis Based on a Pseudo Output Gap

2019 ◽  
Vol 11 (9) ◽  
pp. 2557
Author(s):  
Xiaoyu Zhang ◽  
Fanghui Pan
Keyword(s):  
Growth Rate ◽  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Policy Preferences ◽  
Output Gap ◽  
Policy Rules ◽  
Monetary Policy Rules ◽  
Nominal Interest Rates

Although a large number of scholars have studied the policy preferences and monetary policy rules of China’s central bank, most have found no evidence that China’s central bank has adjusted the nominal interest rates against the output gap. By constructing the pseudo output gap defined by the deviation of the real output growth rate and the target growth rate, this paper finds that China’s central bank prefers to adjust the nominal interest rates against the pseudo output gap. The monetary policy preferences and rules of China’s central bank in different interest rate regimes are investigated based on the threshold Taylor rule model. It is found that, in the high-interest-rate regime, the central bank adjusts the nominal interest against the inflation gap and the pseudo output gap, while in the low-interest-rate regime, there is no evidence that the central bank adjusts the nominal interest rates against the pseudo output gap. The lower bound of interest rate reduction and the weakening of interest rate policy effects caused by the liquidity trap of the interest rate are the possible reasons for China’s central bank not to adjust the nominal interest rates against the pseudo output gap.

scholarly journals Redefining monetary policy rules: A threshold approach

PLoS ONE ◽  
2021 ◽  
Vol 16 (5) ◽  
pp. e0252316
Author(s):  
Carmen Diaz-Roldan ◽  
María A. Prats ◽  
Maria del Carmen Ramos-Herrera
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Threshold Model ◽  
Threshold Value ◽  
Output Gap ◽  
Policy Rule ◽  
Key Variables ◽  
The Interest Rate ◽  
The Relationship

In this paper, we try to analyse the extent to which a redefinition of the monetary policy rule would help to avoid the zero-lower bound, as well as to explore the conditions needed to avoid that constraint. To that aim, we estimate the threshold values of the key variables of the policy rule: the inflation gap and the output gap. The threshold model allows us to know which are the turning points from which the relationship between the key variables and the interest rate revert. In the Eurozone countries, we have found that the inflation gap always contributes to increasing the nominal interest rate. On the contrary, the output gap works differently when it reaches values above or below the threshold value, which would favour the reduction of the interest rates towards the zero level.

scholarly journals A RECONSIDERATION OF THE DOCTRINAL FOUNDATIONS OF MONETARY POLICY RULES: FISHER VERSUS CHICAGO

2021 ◽  
Vol 43 (1) ◽  
pp. 55-82
Author(s):  
George S. Tavlas
Keyword(s):  
Monetary Policy ◽  
Price Level ◽  
Policy Instruments ◽  
Policy Instrument ◽  
Superior Performance ◽  
Policy Uncertainty ◽  
Direct Link ◽  
Policy Rule ◽  
Policy Rules ◽  
Monetary Policy Rules

There has long been a presumption that the price-level stabilization frameworks of Irving Fisher and Chicagoans Henry Simons and Lloyd Mints were essentially equivalent. I show that there were subtle, but important, differences in the rationales underlying the policies of Fisher and the Chicagoans. Fisher’s framework involved substantial discretion in the setting of the policy instruments; for the Chicagoans the objective of a policy rule was to tie the hands of the authorities in order to reduce discretion and, thus, monetary policy uncertainty. In contrast to Fisher, the Chicagoans provided assessments of the workings of alternative rules, assessed various criteria—including simplicity and reduction of political pressures—in the specification of rules, and concluded that rules would provide superior performance compared with discretion. Each of these characteristics provided a direct link to the rules-based framework of Milton Friedman. Like Friedman’s framework, Simons’s preferred rule targeted a policy instrument.

Monetary-Policy Rule as a Bridge: Predicting Inflation without Predictive Regressions

2018 ◽  
Vol 53 (6) ◽  
pp. 2559-2586 ◽  
Author(s):  
Jian Hua ◽  
Liuren Wu
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Historical Analysis ◽  
Policy Rule ◽  
Estimation Errors ◽  
Predictive Regressions ◽  
Inflation Rates ◽  
Monetary Policy Rule ◽  
Out Of Sample

A major issue with predicting inflation rates using predictive regressions is that estimation errors can overwhelm the information content. This article proposes a new approach that uses a monetary-policy rule as a bridge between inflation rates and short-term interest rates and relies on the forward-interest-rate curve to predict future interest-rate movements. The 2-step procedure estimates the predictive relation not through a predictive regression but far more accurately through the contemporaneous monetary-policy linkage. Historical analysis shows that the approach outperforms random walk out of sample by 30%–50% over horizons from 1 to 5 years.

scholarly journals Revival of Legacy of Tooke and Gibson: Implications for Monetary Policy

2015 ◽  
Vol 4 (2) ◽  
pp. 37-58 ◽  
Author(s):  
Atiq-ur Rehman
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Monetary Economics ◽  
Mainstream Economic ◽  
Monetary Policy Rules ◽  
Simple Logic ◽  
The Interest Rate ◽  
Economic Thinking ◽  
The Relationship ◽  
Effectiveness Of Monetary Policy

Abstract The monetary policy rules used by central banks these days are based on the assumption that inflation could be reduced by increasing interest rate. On contrary, Tooke (1774-1858), the forefather of monetary economics, was of the view that the relationship between interest rate and inflation should be positive. His view was based on simple logic, ‘interest is a part of cost, and therefore, the increase in interest rate should increase inflation by increasing cost of production (Tooke, 1838)’. Tooke’s view has got support from a number of empirical evidence including Gibson (1923) who found positive correlation between two variables for UK data over a period of 200 years. On the other hand, mainstream economic thinking on which the actual monetary practices are based ignored any possibility of positive relationship between interest rate and inflation throughout the history. The existence of Tooke’s cost side effects of monetary policy is a serious concern because if these effects exist than the use of monetary policy would be counterproductive. Using the data from entire globe, I attempt to explore the nature of relationship between the interest rate and inflation. I found that the data supports the perception of Tooke and Gibson and denies that the effectiveness of monetary policy currently adapted by the correlation between interest rate and inflation is positive. The results are robust to sample size, sample period, and various definitions of interest rate and inflation.

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