scholarly journals Impact of the Monetary Policy Rules on the Inflation Targeting

2020 ◽  
Vol 12 (1) ◽  
pp. 7-30
Author(s):  
S. S. Sarkisyan
Keyword(s):  
Inflation Targeting ◽  
Gdp Growth ◽  
Inflation Target ◽  
Policy Rules ◽  
Monetary Policy Rules ◽  
Before And After ◽  
The Interest Rate ◽  
Interest Rate Change ◽  
The Right ◽  
Gdp Gap

The standard version of the Taylor rule includes the inflation gap and the GDP gap in the right-hand side. I describe a modified version of it, where the exchange rate growth also determines the interest rate change. I estimate this version for a number of IT and non-IT countries in the periods before and after the financial crisis of 2008. First, countries of both groups are leading the similar politics post 2008. Second, if a central bank pays more attention to the inflation gap and GDP growth, it has a higher probability of an inflation target achievement.

scholarly journals Monetary policy special features in the context of low interest rates

2020 ◽  
Vol 2 ◽  
pp. 50-64
Author(s):  
Kristina Nesterova ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Price Level ◽  
Nominal Interest Rate ◽  
Inflation Target ◽  
Policy Rules ◽  
Monetary Policy Rules ◽  
Monetary Rules

Introduction. The paper considers a wide range of monetary policy rules: integral stabilization, NGDP targeting, price level targeting, raising the inflation target, introducing negative nominal interest rates etc. The author also considers discretionary policy used by central banks when the nominal rate is close to zero, such as dramatic preventive cut of the key interest rate and interventions in the open markets with the aim of cutting long-term interest rates. The relevance of this problem is supported by global long-term macroeconomic and demographic factors, such as the dynamics of oil prices and the aging of the population. The aim of the paper is to identify the most effective monetary policy rules in order to reduce the risk of a nominal interest rate falling to zero. Methods. Analysis of the background and the results of general equilibrium models modeling monetary policy is carried out. Analysis of the role of current global trends (based on statistics) in aggravating the problem of declining interest rates. Scientific novelty of the research. The author systematizes the conclusions of modern macroeconomic theory, which offers a number of monetary rules making it possible to reduce the likelihood of falling into the zero bound of interest rate. Results. The effectiveness of monetary rules such as targeting nominal GDP and price levels in preventing the nominal interest rate from falling to zero is shown, primarily due to more efficient public expectations management which is a weak point of discretionary intervention. Conclusions. Under the current global factors for many developed countries and some oil-exporters, the downward trend in nominal rates persists. Combined with slowdown in economic growth, such threat may have negative consequences for the Russian economy. In this case, it seems reasonable to stick to the inflation target above 2% per year and in the future to consider switching to targeting the price level or nominal GDP.

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.

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.

scholarly journals The Science of Monetary Policy: A New Keynesian Perspective

1999 ◽  
Vol 37 (4) ◽  
pp. 1661-1707 ◽  
Author(s):  
Richard Clarida ◽  
Jordi Galí ◽  
Mark Gertler
Keyword(s):  
Monetary Policy ◽  
Real World ◽  
Imperfect Information ◽  
Inflation Targeting ◽  
Recent Literature ◽  
Policy Design ◽  
New Keynesian ◽  
Credible Commitment ◽  
Policy Rules ◽  
Monetary Policy Rules

The paper reviews the recent literature on monetary policy rules. We exposit the monetary policy design problem within a simple baseline theoretical framework. We then consider the implications of adding various real world complications. Among other things, we show that the optimal policy implicitly incorporates inflation targeting. We also characterize the gains from making a credible commitment to fight inflation. In contrast to conventional wisdom, we show that gains from commitment may emerge even if the central bank is not trying to inadvisedly push output above its natural level. We also consider the implications of frictions such as imperfect information.

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 Design and Conduct of Monetary Policy: Lessons for Pakistan (The Quaid-i-Azam Lecture)

2009 ◽  
Vol 48 (4I) ◽  
pp. 337-356 ◽  
Author(s):  
Mohsin S. Khan
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Jel Classification ◽  
Monetary Policies ◽  
Policy Rules ◽  
Monetary Policy Rules ◽  
Global Capital ◽  
Mobile Capital ◽  
Recent Developments ◽  
Rules Versus Discretion

Movements in global capital during the late 1990s and the greater emphasis on price stability led many countries to abandon fixed exchange rate regimes and to design institutions and monetary policies to achieve credibility in the goal of lowering inflation. Such recent developments have brought to the forefront the idea that freely mobile capital, independent monetary policy, and fixed exchange rates form an “impossible trinity”. Inflation-targeting regimes being adopted by many countries provide a way of resolving this dilemma, and it is suggested that such a regime be implemented in Pakistan as well. JEL classification: E42, E52 Keywords: Monetary Policy, Rules versus Discretion, Inflation Targeting

scholarly journals Welfare Implications of Alternative Monetary Policy Rules: A New Keynesian DSGE Model for Turkey

2017 ◽  
Vol 17 (4) ◽  
pp. 363-379
Author(s):  
Özge Filiz Yağcıbaşı ◽  
Mustafa Ozan Yıldırım
Keyword(s):  
Monetary Policy ◽  
Loss Function ◽  
Inflation Targeting ◽  
New Keynesian ◽  
Demand Shock ◽  
Policy Rules ◽  
Monetary Policy Rules ◽  
Output Fluctuations ◽  
Turkish Economy ◽  
Technology Shock

Abstract In recent years, there has been extensive research on the conduct of monetary policy in small open economies that are subject to inflation and output fluctuations. Policymakers should decide whether to implement strict inflation targeting or to respond to the changes in output fluctuations while conducting monetary policy rule. This study aims to examine the response of alternative monetary policy rules to Turkish economy by means of a DSGE model that is subject to demand and technology shocks. The New Keynesian model we used is borrowed from Gali (2015) and calibrated for the Turkish economy. Welfare effects of alternative Taylor rules are evaluated under different specifications of central bank loss function. One of the main findings of this paper is that in the case of a technology shock, strict inflation targeting rules provide the minimum welfare loss under all loss function configurations. On the contrary, the losses are weakened if the monetary authority responds to output fluctuations in the presence of a demand shock. Finally, there exists a trade-off between the volatility of output and inflation in case of a technology shock, while the volatility of both variables moves in the same direction in response to a demand shock.

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