scholarly journals Forward-Looking and Backward-Looking Taylor Rules: Evidence from Pakistan

2013 ◽  
Vol 18 (2) ◽  
pp. 121-145
Author(s):  
Nadia Tahir
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Method Of Moments ◽  
Generalized Method Of Moments ◽  
The State ◽  
Output Gap ◽  
Taylor Rules ◽  
Quarterly Data ◽  
Interest Rate Rule ◽  
Forward Looking

This study uses the forward-looking rule and backward-looking Taylor rule to investigate the conduct of monetary policy in Pakistan during 1971–2011. We compare the pre- and post-reform periods, and find that the estimates obtained using the generalized method of moments indicate that no interest rate rule was being followed. This explains the inability of monetary policy to control inflation and minimize the output gap. Although monetary policy was not very active in the pre- and post-reform periods, the post-reform quarterly data show some interest rate inertia and smoothing. Monetary policy was less accommodating of the cyclical nature of the output gap. We conclude that the behavior of the State Bank of Pakistan was not very different under forward- or backward-looking rules.

scholarly journals Monetary Policy Rules in Emerging ASEAN Economies

2021 ◽  
Vol 12 (3) ◽  
pp. 255-274
Author(s):  
Mesa Wanasilp
Keyword(s):  
Monetary Policy ◽  
Method Of Moments ◽  
Inflation Targeting ◽  
Generalized Method Of Moments ◽  
The Philippines ◽  
Policy Implications ◽  
Output Gap ◽  
Policy Rules ◽  
Monetary Policy Rules ◽  
The Difference

This paper examines the monetary policy rules for five emerging ASEAN economies—Indonesia, the Philippines, and Thailand as the adopters of inflation targeting (IT) and Malaysia and Vietnam as the non-IT adopters. For the methodology, this study applies a generalized method of moments that provides a consistent and efficient estimator for the estimation that contains endogenously determined variables. The questions are whether the rules of the IT adopters have fulfilled the Taylor principle and what has been the difference in the rules between the IT adopters and the non-IT adopters. The main findings are as follows: Regarding the IT adopters, their rules are characterized by inflation-responsive rules fulfilling the Taylor principle. As for the non-IT adopters, Malaysia follows solely an output-gap responsive rule, and Vietnam exhibits the mixed rules. The policy implications are that for the IT adopters there might be room to make their policy-rate responses more elastic to inflation, and that for the non-IT adopters, there would be a need to adopt an explicit IT framework.

scholarly journals Monetary Policy Rules in Emerging ASEAN Economies

2021 ◽  
Vol 12 (3) ◽  
pp. 0-0
Keyword(s):  
Monetary Policy ◽  
Method Of Moments ◽  
Inflation Targeting ◽  
Generalized Method Of Moments ◽  
The Philippines ◽  
Policy Implications ◽  
Output Gap ◽  
Policy Rules ◽  
Monetary Policy Rules ◽  
The Difference

This paper examines the monetary policy rules for five emerging ASEAN economies: Indonesia, the Philippines, and Thailand as the adopters of inflation targeting (IT), and Malaysia and Vietnam as the non-IT adopters. For the methodology, this study applies a generalized method of moments that provides a consistent and efficient estimator, for the estimation that contains endogenously determined variables. The questions are: whether the rules of the IT adopters have fulfilled the Taylor principle, and what has been the difference in the rules between the IT adopters and the non-IT adopters. The main findings are as follows. Regarding the IT adopters, their rules are characterized by inflation-responsive rules fulfilling the Taylor principle. As for the non-IT adopters, Malaysia follows solely an output-gap responsive rule; and Vietnam exhibits the mixed rules. The policy implications are that for the IT adopters there might be room to make their policy-rate responses more elastic to inflation; and that for the non-IT adopters there would be a need to adopt an explicit IT framework.

scholarly journals The Unpleasant Arithmetic of the Taylor Rule

2020 ◽  
Vol 8 (3) ◽  
pp. p89
Author(s):  
Alejandro Rodriguez-Arana
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Phillips Curve ◽  
Taylor Rule ◽  
Independent Component ◽  
Elasticity Of Substitution ◽  
Interest Rate Rule

This paper analyzes the effect of a monetary policy that raises the reference interest rate in order to reduce inflation in a situation where the fiscal policy parameters remain constant. In an overlapping generation’s model and in the presence of an accelerationist Phillips curve and a Taylor rule of interest rates, it is observed that increasing the independent component of said rule leads to a solution that at least in a large number of cases is unstable. In the case where the elasticity of substitution is greater than one, inflation falls temporarily, but then it can increase in an unstable manner. One way to achieve stability is to establish an interest rate rule where Taylor’s principle is not met. However, in this case many times the increase in the independent component of this rule will generate greater long-term inflation.

OPTIMAL MONETARY POLICY FOR THE EMU ACCESSION COUNTRIES. A NEW KEYNESIAN APPROACH

2014 ◽  
Vol 19 (7) ◽  
pp. 1427-1475 ◽  
Author(s):  
Anna Lipińska
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Optimal Policy ◽  
Nominal Exchange Rate ◽  
Nominal Interest Rate ◽  
Output Gap ◽  
Optimal Monetary Policy ◽  
Accession Countries ◽  
Dynamic Stochastic ◽  
Maastricht Criteria

This paper uses a dynamic stochastic general equilibrium model of a two-sector small open economy to analyze how the Maastricht criteria modify a fully credible optimal monetary policy in the Economic and Monetary Union accession countries. We show that if the country is not constrained by the criteria, optimal policy should stabilize fluctuations in PPI inflation, in the aggregate output gap, and in the domestic and international terms of trade. The optimal policy constrained permanently by the Maastricht criteria is characterized by reduced variability of the nominal exchange rate, CPI inflation, and the nominal interest rate and by lower optimal targets for CPI inflation and nominal interest rate. This policy results in higher variability and nonzero means for both PPI inflation and output gap, thus leading to additional, but small, welfare costs compared with the unconstrained policy.

scholarly journals A Neowicksellian in a New Classical World: The Methodology of Michael Woodford's Interest and Prices

2006 ◽  
Vol 28 (2) ◽  
pp. 143-149 ◽  
Author(s):  
Kevin D. Hoover
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Financial Markets ◽  
Interest Rates ◽  
Theoretical Orientation ◽  
Central Banks ◽  
Point Of View ◽  
Monetary Aggregates ◽  
Classical World ◽  
Interest Rate Rule

Michael Woodford's Interest and Prices: Foundations of a Theory of Monetary Policy (2003) is an important book. Woodford's title is, of course, a conscious revival of Wicksell's own famous work and it points to an effort to recast the analysis of monetary policy as centered on interest rates. I believe that Woodford's theoretical orientation is essentially correct. In repairing to Wicksell, he places the monetary aggregates into a more reasonable perspective, correcting the distortions of the monetarist and Keynesian diversions with respect to money. My money is, so to speak, where my mouth is: My own textbook-in-progress is also based around an IS/interest-rate rule/AS model, in which financial markets cleared by price rather than the LM curve are emphasized. Such an approach, as Woodford notes, has become standard in central banks, but has not yet captured either core undergraduate or graduate textbooks and instruction. My task here, however, was not to praise Woodford's economics nor to trace or evaluate its Wicksellian routes, but to consider Interest and Prices from a methodological point of view.

DOES MODEL UNCERTAINTY JUSTIFY CAUTION? ROBUST OPTIMAL MONETARY POLICY IN A FORWARD-LOOKING MODEL

2002 ◽  
Vol 6 (1) ◽  
pp. 111-144 ◽  
Author(s):  
Marc P. Giannoni
Keyword(s):  
Monetary Policy ◽  
Model Uncertainty ◽  
Structural Model ◽  
Optimal Monetary Policy ◽  
Taylor Rules ◽  
True Model ◽  
The Interest Rate ◽  
Zero Sum ◽  
General Method ◽  
Forward Looking

This paper proposes a general method based on a property of zero-sum two-player games to derive robust optimal monetary policy rules—the best rules among those that yield an acceptable performance in a specified range of models—when the true model is unknown and model uncertainty is viewed as uncertainty about parameters of the structural model. The method is applied to characterize robust optimal Taylor rules in a simple forward-looking macroeconomic model that can be derived from first principles. Although it is commonly believed that monetary policy should be less responsive when there is parameter uncertainty, we show that robust optimal Taylor rules prescribe in general a stronger response of the interest rate to fluctuations in inflation and the output gap than is the case in the absence of uncertainty. Thus model uncertainty does not necessarily justify a relatively small response of actual monetary policy.

scholarly journals The Effect Of Government Debt Quantity Shocks On The Term Structure Of Interest Rates

2011 ◽  
Vol 5 (1) ◽  
Author(s):  
Riza Emekter ◽  
John Geppert ◽  
Benjamas Jirasakuldech
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Method Of Moments ◽  
Public Debt ◽  
Generalized Method Of Moments ◽  
Government Debt ◽  
Font Size ◽  
Yield Model ◽  
The Relationship

<p class="MsoBodyTextIndent" style="text-align: justify; line-height: normal; margin: 0in 35.2pt 0pt 35pt;"><span style="mso-bidi-font-style: italic;"><span style="font-size: x-small;"><span style="font-family: Times New Roman;">In this paper, the effect of the maturity composition of marketable public debt on the term structure of interest rate is explored.<span style="mso-spacerun: yes;">&nbsp; </span>The research has shown that this effect is relatively small.<span style="mso-spacerun: yes;">&nbsp; </span>Unlike previous research, the yield changes around the quantity shocks are analyzed in relation to these shocks.<span style="mso-spacerun: yes;">&nbsp; </span>Our results show that yields respond significantly to the auctioning of new bonds.<span style="mso-spacerun: yes;">&nbsp; </span>The announcements of auctions do not have any impact on yields.<span style="mso-spacerun: yes;">&nbsp; </span>A two-factor affine yield model is used to explain the relationship between quantity shocks in public debt and term structure of interest rates.<span style="mso-spacerun: yes;">&nbsp; </span>The parameters are estimated using Generalized Method of Moments.<span style="mso-spacerun: yes;">&nbsp; </span>While the relationship between quantities and yields is weak, yields can be related to the event of the auctioning process.</span></span></span></p>

scholarly journals Analysis of the Effectiveness of Monetary Policy Transmission through a Line of Credit and Inflation Expectations in Indonesia

2021 ◽  
Vol 8 (5) ◽  
pp. 299-309
Author(s):  
Suti Masniari ◽  
Sirojuzilam . ◽  
Dede Ruslan
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Regression Model ◽  
Interest Rates ◽  
Secondary Data ◽  
Transmission Mechanism ◽  
Output Gap ◽  
Inflation Expectations ◽  
Policy Transmission

This study aims to determine the effectiveness of the transmission mechanism of monetary policy by reviewing the amount of the deadline that required the transmission mechanism of monetary policy in achieving the goals of the final form of the output gap and inflation by using the channel of credit and inflation expectations. In addition, this study also aims to determine the relationship long-term and short against the target output gap and inflation. This study uses a regression model Vector Error Correction Model (VECM) to estimate the influence of the transmission mechanism of monetary policy to the output gap and inflation through the channel of credit and the regression model of Vector Autoregression (VAR) to estimate the influence of the transmission mechanism of monetary policy to the output gap and inflation through the channel of inflation expectations. The Data used in this research is the data series time quarter from 2008 to 2018. Data peneliltian used to estimate the influence of the transmission mechanism of monetary policy to the output gap and inflation through the channel of credit in the form of secondary data consisting of the benchmark interest rate of Bank Indonesia, the interest rates on the interbank money market 1 month, loan interest rates, money supply (M2) and the amount of working capital loans disbursed. While the data used to estimate the influence of the transmission mechanism of monetary policy to the output gap and inflation through the channel of inflation expectations in the form of secondary data consisting of the benchmark interest rate of Bank Indonesia, inflation expectations. The secondary Data used is sourced from the annual reports that are published from the official website of the Bank of Indonesia, the data of the Central Bureau of Statistics and the International Monetary Fund. The results of this study showed that the effectiveness of the transmission mechanism of monetary policy through the credit channels require the deadline each of the 8 (eight) of the quarter and 10 (ten) quarter in achieving the goals of the end of the output gap and inflation. While the effectiveness of the transmission mechanism of monetary policy through the channel of inflation expectations require the deadline each of the 4 (four) quarter and 6 (six) quarter in achieving the goals of the end of the output gap and inflation. The results also showed only policy transmission mechanism built rmelalui credit lines that have long-term relationships against inflation while the transmission mechanism of monetary policy through the channel of inflation expectations have short-term relationship strong. Keywords: The Transmission Mechanism Of Monetary Policy, Output Gap, Inflation.

scholarly journals Interest Rate and Exchange Rate Volatility Spillovers: Multiscale Perspective of Monetary Policy Transmission in Ghana

2020 ◽  
Vol 9 (1) ◽  
pp. 135-167
Author(s):  
Nana Kwame Akosah ◽  
Paul Alagidede ◽  
Eric Schaling
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Exchange Rate Volatility ◽  
Output Gap ◽  
Monetary Policy Transmission ◽  
Volatility Spillovers ◽  
Policy Transmission ◽  
The Exchange Rate ◽  
Macro Variables

AbstractGhana’s economy is characterised by acute exchange rate volatility alongside persistent and high consumer inflation. This places the economy among the sub-Saharan African countries with the highest inflation over the years. Therefore, we explore in-sample and out-of-sample macro-volatility spillovers to determine the effectiveness of monetary policy and also ascertain the relevance of the exchange rate in Ghana’s interest rate setting at both time and multiscale domains. The study reveals scale-dependent interconnectedness among the macro-variables as their causal linkages broadly intensify at the longer time-scale. We find the real policy rate and the exchange rate to be net transmitters of shocks, while inflation and output gaps are net receivers of shocks from the system. Output gap, however, is the largest net receiver of shocks from the system. The empirical findings generally buttress the prerequisite to uphold exchange rate stability in order to inure general macroeconomic stability in Ghana. In addition, the extent of spillover dynamics from policy interest rate to and from the targeted macro-variables (particularly output gap and inflation) appears to be moderate even in the long run, surmising less effective monetary policy transmission in Ghana.

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