Central Bank Reaction Functions in Inflation and Non-Inflation Targeting Countries: Are They Informative About the Conduct of Monetary Policy?

1998 ◽  
Author(s):  
Stephen Murchison ◽  
Pierre L. Siklos
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Inflation Targeting ◽  
Reaction Functions

scholarly journals An Empirical Analysis of the Monetary Policy Reaction Function

2018 ◽  
Vol 10 (3) ◽  
pp. 30
Author(s):  
Felix S. Nyumuah
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Inflation Targeting ◽  
Policy Instruments ◽  
Ordinary Least Squares ◽  
Policy Rule ◽  
Reaction Functions ◽  
Expected Inflation ◽  
Monetary Policy Reaction Function ◽  
Consistent Response

Monetary policy decisions usually follow a policy rule which shows a consistent response of policy instruments to variations in inflation and economic growth. The aim of this study is to establish the nature of monetary policy in developing countries through the analysis of policy reaction functions. This study uses macroeconomic data from Ghana, a typical developing country. The study employs the Dynamic Ordinary Least Squares Estimation techniques and finds the central bank to follow a backward-looking Taylor rule. The evidence is that the central bank follows some form of policy rule and focuses more on past inflation relative to current or expected inflation. The results also indicate that the Bank of Ghana has been pursuing inflation targeting monetary policy. The central bank follows an inflation targeting rule allowing for output stabilisation. The exchange rate also plays a role in this stabilization effort.

Central bank transparency, inflation targeting and monetary policy: a panel data approach

2018 ◽  
Vol 45 (6) ◽  
pp. 1159-1174 ◽  
Author(s):  
Gabriel Caldas Montes ◽  
Cristiane Gea
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Panel Data ◽  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Content Type ◽  
Central Bank Transparency ◽  
Policy Interest

Purpose The evidence concerning the effects of the inflation targeting (IT) regime as well as greater central bank transparency on monetary policy interest rates is not conclusive, and the following questions remain open. What is the effect of adopting IT on both the level and volatility of monetary policy interest rate? Does central bank transparency affect the level of the monetary policy interest rate and its volatility? Are these effects greater in developing countries? The purpose of this paper is to contribute to the literature by answering these questions. Hence, the paper analyzes the effects of IT and central bank transparency on monetary policy. Design/methodology/approach The analysis uses a sample of 48 countries (31 developing) comprising the period between 1998 and 2014. Based on panel data methodology, estimates are made for the full sample, and then for the sample of developing countries. Findings Countries that adopt the IT regime tend to have lower levels of monetary policy interest rates, as well as lower interest rate volatility. The effect of adopting IT on both the level and volatility of the basic interest rate is smaller in developing countries. Besides, countries with more transparent central banks have lower levels of monetary policy interest rates, as well as lower interest rate volatility. In turn, the effect of central bank transparency on both the level and volatility of the basic interest rate is greater in developing countries. Practical implications The study brings important practical implications regarding the influence of both the IT regime and central bank transparency on monetary policy. Originality/value Studies have sought to analyze whether IT and central bank transparency are effective to control inflation. However, few studies analyze the influence of IT and central bank transparency on interest rates. This study differs from the few existing studies since: the analysis is done not only for the effect of transparency on the level of the monetary policy interest rate, but also on its volatility; the central bank transparency index that is used has never been utilized in this sort of analysis; and the study uses panel data methodology, and compares the results between different samples.

The czech experience with inflation targeting in transition

2000 ◽  
Vol 9 (3) ◽  
Author(s):  
Kateřina Šmídková ◽  
Miroslav Hrnčíř
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Inflation Targeting ◽  
Central Banks ◽  
Communication Strategy ◽  
The Other ◽  
Short Term ◽  
Countries In Transition ◽  
The One

This paper argues that inflation targeting is a strategy that can be under certain conditions adopted by central banks in countries in transition even though their typical goal is to disinflate instead of stabilising low inflation. On the one hand, according to the Czech experience, inflation targeting offers several benefits, such as increasing control over expectations and short-term flexibility of monetary strategy, that are attractive for economy in transition. On the other hand, constraints imposed by period of transition as well as by openness of economy are present no matter which monetary strategy is chosen by the central bank. Implied costs should not be attributed to a particular monetary strategy. Inflation targeting has made various factors constraining monetary policy more visible and, as a result, requirements on the quality of decisions as well as on communication strategy have increased.

scholarly journals Does the high-frequency data is helpful for forecasting Russian inflation?

2021 ◽  
Vol 37 (2) ◽  
pp. 318-343
Author(s):  
Dmitriy Tretyakov ◽  
◽  
Nikita Fokin ◽  
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
High Frequency ◽  
Inflation Targeting ◽  
Low Frequency ◽  
High Frequency Data ◽  
Frequency Data ◽  
Policy Regime ◽  
The Future ◽  
Forecasting Inflation

Due to the fact that at the end of 2014 the Central Bank made the transition to a new monetary policy regime for Russia — the inflation targeting regime, the problem of forecasting inflation rates became more relevant than ever. In the new monetary policy regime, it is important for the Bank of Russia to estimate the future inflation rate as quickly as possible in order to take measures to return inflation to the target level. In addition, for effective monetary policy, the households must trust the actions of monetary authorities and they must be aware of the future dynamics of inflation. Thus, to manage inflationary expectations of economic agents, the Central Bank should actively use the information channel, publish accurate forecasts of consumer price growth. The aim of this work is to build a model for nowcasting, as well as short-term forecasting of the rate of Russian inflation using high-frequency data. Using this type of data in models for forecasting is very promising, since this approach allows to use more information about the dynamics of macroeconomic indicators. The paper shows that using MIDAS model with weekly frequency series (RUB/USD exchange rate, the interbank rate MIACR, oil prices) has more accurate forecast of monthly inflation compared to several basic models, which only use low-frequency data.

Inflation volatility, monetary policy signaling and clarity of the central bank communication

2019 ◽  
Vol 46 (2) ◽  
pp. 266-283 ◽  
Author(s):  
Rodolfo Nicolay ◽  
Ana Jordânia de Oliveira
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Emerging Economies ◽  
Inflation Targeting ◽  
Generalized Method Of Moments ◽  
Emerging Economy ◽  
Ordinary Least Squares ◽  
Content Type ◽  
Inflation Volatility ◽  
Central Bank Communication

PurposeStudies about the determinants of the clarity of central bank communication are still scarce. To the authors’ knowledge, there are no studies regarding emerging economies. The purpose of this paper is to contribute to the literature in the following aspects: to analyze the determinants of the clarity of the central bank communication in an inflation targeting emerging economy; observe the influence of inflation volatility over the clarity; and observe the effect of the monetary policy signaling over the clarity.Design/methodology/approachThe work uses readability indexes to measure the clarity of central bank communication. The empirical analysis uses ordinary least squares and the Generalized Method of Moments with one- and two-step estimations.FindingsThe findings suggest the inflation volatility reduces the clarity of central bank communication. Moreover, the monetary policy signaling also affects the clarity, but the effect depends on the direction of the signal.Practical implicationsThis paper observes the determinants of the clarity considering an emerging economy environment. The clarity of central bank communications is an important tool to access transparency. Hence, the analysis of what determines the clarity of central bank communication is a debate about the level of transparency accessed by the central bank.Originality/valueThere are no studies about the determinants of the clarity of central bank communication in emerging economies. Moreover, the novelty are the effects of inflation volatility and monetary policy signaling over the clarity.

scholarly journals Central Bank Credibility, Independence, and Monetary Policy

2018 ◽  
Vol 7 (3) ◽  
pp. 91-110 ◽  
Author(s):  
Abdelkader Aguir
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Emerging Economies ◽  
Inflation Targeting ◽  
Central Bank Independence ◽  
Inflation Target ◽  
Central Bank Credibility

Abstract The main motives behind the adoption of an inflation targeting regime largely relate to the notion of credibility, transparency of monetary policy and the autonomy of the central bank, which explicitly undertakes to achieve a certain inflation target. This paper examines the effects of inflation targeting in emerging economies in relation to the degree of independence of the central bank and the credibility of monetary policy. We find effects in emerging economies with little central bank independence, so our findings suggest that the central bank’s credibility, transparency and independence is a prerequisite for emerging economies to experience a decline in inflation following the adoption of inflation targeting.

Poland Before the Euro

2002 ◽  
Vol 22 (2) ◽  
pp. 199-215 ◽  
Author(s):  
Ryszard Kokoszczyński
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Interest Rates ◽  
Inflation Targeting ◽  
The European Union ◽  
Policy Goals ◽  
General Rules ◽  
The Everyday ◽  
Internal Inconsistency ◽  
High Degree

The euro is relevant for decisions that the Polish Central Bank takes about its general rules of monetary policy, goals and decision structures, but it is not, or at least not yet, relevant to the everyday processes of controlling money supply and interest rates. Fighting inflation was a primary target of the central bank prior to applying for entry to the European Union and maintaining a satisfactory external account. However, with the growing openness of the economy, eclectic monetary policy showed a high degree of internal inconsistency. With greater autonomy under a new constitution, the Central Bank adopted direct inflation targeting. The adoption of this measure is consistent with emerging EU policy but was driven by specifically Polish concerns.

scholarly journals Theoretical analysis of Dynamic General Equilibrium model

2014 ◽  
Vol 3 (1) ◽  
pp. 22-28
Author(s):  
Mimi Kodheli ◽  
Arjeta Vokshi
Keyword(s):  
Decision Making ◽  
Monetary Policy ◽  
Theoretical Analysis ◽  
General Equilibrium ◽  
Central Bank ◽  
Inflation Targeting ◽  
Policy Decision ◽  
The Other ◽  
Dsge Model ◽  
Policy Decision Making

Central Bank is one of the most important institutions of a country because its responsibility is to draw and implement the monetary policy. The central bank, in order to accomplish this responsibility, has to have a clearly defined main objective, the instruments that will use to achieve the objective, and it should be able to make precise or very good forecasts of macroeconomic variables. In order to make these forecasts, the central bank should first of all understand every monetary transmission mechanism and determine the most effective one. The success or non-success of monetary policy, living apart the other factors, depends on the monetary regime implemented in the country. In the last years, a lot of countries have implemented the inflation targeting regime. One of the conditions of the implementation of the inflation targeting regime is that the central bank should be able to make precise forecasts. For this reason, the structural macroeconomic models, in these days, have became very used because the central banks have used these models as a basis for the policy decision-making based in forecasts. The main goal of these models is to provide a more structured input for the monetary policy decision making, helping to create a full ‘history’ and helping to explain the consequences of different external shocks and different policy rules.Dynamic Stochastic General Equilibrium (DSGE) model is one of the most used forecasting models in the countries that have implemented the inflation targeting regime. Albania is one of the countries that want to formally implement the inflation targeting regime and give up the monetary targeting regime. Now for now Bank of Albania is using the MEAM model as a macroeconomic model of forecasting. In we look at the experience of the other countries that have implemented the inflation targeting regime and the recommendations of the foreign experts, we can conclude that Bank of Albania should work and should evaluate a DSGE model. This is the main reason why this paper is focused on the theoretical analysis of the DSGE model. In the paper will be presented arguments that explain why this is a good forecasting model for Albania. The arguments will be given based on the analysis of the characteristics of this type of model. Also in this paper we will discuss the advantages and disadvantages of this type of model. This analysis will help us strengthen the arguments about the necessity of use of this model from Bank of Albania.

The New Monetary Regime: Introduction

2006 ◽  
Vol 196 ◽  
pp. 63-65
Author(s):  
S.G. Hall ◽  
S.G.B. Henry
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Inflation Targeting ◽  
European Monetary ◽  
The Past ◽  
Monetary Regime ◽  
1960S And 1970S ◽  
European Monetary Policy ◽  
The 1960S ◽  
Policy Setting

Perhaps the most striking feature of macroeconomic policy of the past twenty or thirty years has been the emergence of a consensus that monetary policy should be delegated to an independent authority. The world has moved from a situation in the 1960s and 1970s where there were very few independent central banks — in Europe the main example was the Bundesbank of course — to one now where independence is almost standard. Indeed with the foundation of the European Central Bank and the eurosystem the Bundesbank model has effectively come to dominate European monetary policy. The collection of papers in this issue of the Review consider this move in policy setting from a number of diverse perspectives including the move to inflation targeting as well as central bank independence. They assess the effectiveness of this move, describing how an independent monetary authority actually does operate, as well as how it might utilise information more effectively

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