Time-varying Parameters in Monetary Policy Rules: A GMM Approach
Journal article
Anderl, C. and Caporale, G. (2024). Time-varying Parameters in Monetary Policy Rules: A GMM Approach. Journal of Economic Studies. https://doi.org/10.1108/jes-06-2023-0289
Authors | Anderl, C. and Caporale, G. |
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Abstract | This paper assesses time variation in monetary policy rules by applying a Time-Varying Parameter Generalised Methods of Moments (TVP-GMM) framework. Using monthly data until December 2022 for five inflation targeting countries (the UK, Canada, Australia, New Zealand, Sweden) and five countries with alternative monetary regimes (the US, Japan, Denmark, the Euro Area, Switzerland), we find that monetary policy has become more averse to inflation and more responsive to the output gap in both sets of countries over time. In particular, there has been a clear shift in inflation targeting countries towards a more hawkish stance on inflation since the adoption of this regime and a greater response to both inflation and the output gap in most countries after the global financial crisis, which indicates a stronger reliance on monetary rules to stabilise the economy in recent years. It also appears that inflation targeting countries pay greater attention to the exchange rate pass-through channel when setting interest rates. Finally, monetary surprises do not seem to be an important determinant of the evolution over time of the Taylor rule parameters, which suggests a high degree of monetary policy transparency in the countries under examination. |
Keywords | Taylor rules, Monetary policy rules, Generalised Methods of Moments, Time-varying parameters |
Year | 2024 |
Journal | Journal of Economic Studies |
Publisher | Emerald |
ISSN | 0144-3585 |
Digital Object Identifier (DOI) | https://doi.org/10.1108/jes-06-2023-0289 |
Publication dates | |
30 Jan 2024 | |
Publication process dates | |
Accepted | 01 Dec 2023 |
Deposited | 29 Jan 2024 |
Publisher's version | License File Access Level Open |
Accepted author manuscript | License File Access Level Controlled |
https://openresearch.lsbu.ac.uk/item/962zv
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