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
AuthorsAnderl, C. and Caporale, G.
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.

KeywordsTaylor rules, Monetary policy rules, Generalised Methods of Moments, Time-varying parameters
Year2024
JournalJournal of Economic Studies
PublisherEmerald
ISSN 0144-3585
Digital Object Identifier (DOI)https://doi.org/10.1108/jes-06-2023-0289
Publication dates
Print30 Jan 2024
Publication process dates
Accepted01 Dec 2023
Deposited29 Jan 2024
Publisher's version
License
File Access Level
Open
Accepted author manuscript
License
File Access Level
Controlled
Permalink -

https://openresearch.lsbu.ac.uk/item/962zv

Download files


Publisher's version
10-1108_JES-06-2023-0289.pdf
License: CC BY 4.0
File access level: Open

  • 56
    total views
  • 40
    total downloads
  • 0
    views this month
  • 1
    downloads this month

Export as

Related outputs

Functional oil price expectations shocks and inflation
Anderl, C. and Caporale, G. (2024). Functional oil price expectations shocks and inflation. Journal of Futures Markets. https://doi.org/10.1002/fut.22540
Shipping Cost Uncertainty, Endogenous Regime Switching and the Global Drivers of Inflation
Anderl, C. and Caporale, G. (2024). Shipping Cost Uncertainty, Endogenous Regime Switching and the Global Drivers of Inflation. International Economics.
Functional Shocks to Inflation Expectations and Real Interest Rates and Their Macroeconomic Effects
Anderl, C. and Caporale, G. (2023). Functional Shocks to Inflation Expectations and Real Interest Rates and Their Macroeconomic Effects. Review of World Economics.
Asymmetries, Uncertainty and Inflation: Evidence from Developed and Emerging Economies
Anderl, C. and Caporale, G. (2023). Asymmetries, Uncertainty and Inflation: Evidence from Developed and Emerging Economies. Journal of Economics and Finance. https://doi.org/10.1007/s12197-023-09639-6
Forecasting Inflation with a Zero Lower Bound or Negative Interest Rates: Evidence from Point and Density Forecasts
Anderl, C. and Caporale, G. (2022). Forecasting Inflation with a Zero Lower Bound or Negative Interest Rates: Evidence from Point and Density Forecasts. The Manchester School. 91 (3), pp. 171-232. https://doi.org/10.1111/manc.12434
Shadow Rates as a Measure of the Monetary Policy Stance: Some International Evidence
Anderl, C. and Caporale, G. (2022). Shadow Rates as a Measure of the Monetary Policy Stance: Some International Evidence. Scottish Journal of Political Economy. 70 (5), pp. 399-422. https://doi.org/10.1111/sjpe.12343
Nonlinearities In The Exchange Rate Pass-Through: The Role Of Inflation Expectations
Anderl, C. and Caporale, G. (2022). Nonlinearities In The Exchange Rate Pass-Through: The Role Of Inflation Expectations. International Economics. 173, pp. 86-101. https://doi.org/10.1016/j.inteco.2022.10.003
Testing for UIP-Type Relationships: Nonlinearities, Monetary Announcements and Interest Rate Expectations
Anderl, C. and Caporale, G. (2022). Testing for UIP-Type Relationships: Nonlinearities, Monetary Announcements and Interest Rate Expectations. Open Economies Review. https://doi.org/OPEN-D-21-00094R1
Exchange Rate Parities and Taylor Rule Deviations
Anderl, C. and Caporale, G. (2021). Exchange Rate Parities and Taylor Rule Deviations. Empirical economics. https://doi.org/10.1007/s00181-021-02192-3
Nonlinearities and asymmetric adjustment to PPP in an exchange rate model with inflation expectations
Anderl, C. and Caporale, G. (2021). Nonlinearities and asymmetric adjustment to PPP in an exchange rate model with inflation expectations. Journal of Economic Studies. https://doi.org/10.1108/JES-02-2021-0109