scholarly journals Matching NBP interest rates to different versions of the Taylor rule

2019 ◽  
Vol 14 (2) ◽  
pp. 165-177
Author(s):  
Tomasz Grabia
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Economic Crisis ◽  
Real Interest Rate ◽  
Taylor Rule ◽  
Macroeconomic Variables ◽  
The Interest Rate ◽  
Gdp Gap

The interest rate is the basic instrument of monetary policy, directly or indirectly affecting basic macroeconomic variables, such as inflation, unemployment and economic growth. The aim of the article is to compare the NBP reference rate with hypothetical rates calculated on the basis of different variants of the Taylor rule and to indicate which of those variants is best suited to the situation in Poland. The study period of 2000-2017 was adopted for the analysis. On its basis, it was found that in most cases the real interest rate of the central bank in Poland strongly coincided with rates that would have been set if one of the varieties of the Taylor rule had been in force. The best match coincided with the modified version of this rule, which was created after the economic crisis. That means that the NBP took into account both the deviations of inflation from the target and the GDP gap when making decisions regarding interest rates.

scholarly journals “WAIT-AND-SEE” MONETARY POLICY

2017 ◽  
Vol 23 (5) ◽  
pp. 1793-1814 ◽  
Author(s):  
Xiaowen Lei ◽  
Michael C. Tseng
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Taylor Rule ◽  
Adjustment Costs ◽  
Optimal Timing ◽  
Bank Of Canada ◽  
Wait And See ◽  
The Interest Rate ◽  
Better Than

This paper develops a model of the optimal timing of interest rate changes. With fixed adjustment costs and ongoing uncertainty, changing the interest rate involves the exercise of an option. Optimal policy therefore has a “wait-and-see” component, which can be quantified using option pricing techniques. We show that increased uncertainty makes the central bank more reluctant to change its target interest rate, and argue that this helps explain recent observed deviations from the Taylor Rule. An optimal wait-and-see policy fits the target interest rates of the Fed and Bank of Canada better than the Taylor Rule.

scholarly journals ANALYSIS OF THE ECB MONETARY POLICY MATCH FOR THE NEEDS OF THE EURO AREA COUNTRIES NEEDS

Ekonomika ◽  
2013 ◽  
Vol 92 (3) ◽  
pp. 41-58
Author(s):  
Tomas Reichenbachas
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Euro Area ◽  
Taylor Rule ◽  
Currency Area ◽  
The Face ◽  
Asymmetric Shock ◽  
The Interest Rate ◽  
The One

Abstract. In this paper, using the Taylor rule (Taylor, 1993), the European Central Bank (ECB) monetary policy in 2000–2012, as well as individual interest rate needs of the euro area (EA) countries are analysed. It is assumed that the estimated Taylor rule interest rates are optimal for individual members. We have analysed whether the actual ECB interest rates and the calculated rates are different and have become more balanced towards individual countries’ needs. The work focuses attention on the last period (2008–2012) when the EA faced economic problems and an asymmetric shock. The analysis shows controversial results: on the one hand, the interest deviation mean decreases (just a little), but an increasing gap between individual needs can be seen: some countries are becoming increasingly divorced from the general EA needs. It makes them very vulnerable, and there is a risk that these countries in the face of asymmetric challenges can be “left behind” by the ECB focusing on the EA as a whole. Also, in this paper, the stationarity of the calculated deviations is analysed to help understand their nature. This approach is new, and the author is unaware of similar works. Analysis of the optimal interest rate dynamics has revealed that Germany needed the interest rates that were opposite to the needs of Spain and Greece and susceptible to divergence, so this led to the ECB difficulties in determining the proper interest for all countries’ needs. The EA as a currency area is most optimal for Belgium, Cyprus, Finland, France, Italy, and the Netherlands from the interest rate setting perspective.Key words: the Taylor rule, optimal monetary policy, asymmetric shocks, optimal currency area

scholarly journals THE EFFECT OF MONETARY POLICY ON UNEMPLOYMENT RATE IN INDONESIA

2021 ◽  
Vol 6 (1) ◽  
pp. 1
Author(s):  
Hafiansyah Mahadika ◽  
Wisnu Wibowo
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Unemployment Rate ◽  
Real Interest Rate ◽  
Real Exchange Rates ◽  
Series Data ◽  
The Real ◽  
The Impact

This study aims to determine the influence of monetary policy on the unemployment rate in Indonesia. Unemployment is one of the fundamental problems in the economy. The unemployment problem can be overcome by monetary policy. This study used time series data with the period 1975-2016 using real money demand, economic growth, real interest rates, and real exchange rates as independent variables, and the unemployment rate as the dependent variable. The data used in this study is secondary data obtained from the World Bank. The method used is ARDL (Autoregressive Distributed Lag) which can change a static economic theory to be dynamic by taking into account the role of time explicitly. The results show that in the long run the probability value of the economic growth variable is below the 5% significance level which indicates that economic growth had a negative and significant effect on the unemployment rate. In the short run, the real interest rate, the real interest rate at lag 1, economic growth at lag 1 and lag 3, and the real exchange rate at lag 1 had a negative and significant effect on the unemployment rate. This indicates that the impact of monetary policy on the unemployment rate is temporary.Keywords: Unemployment Rate, Monetary Policy, ARDL.JEL : E24, E52, E61.

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.

Brazil: monetary policy and the neutral interest rate

2016 ◽  
Vol 43 (6) ◽  
pp. 966-979
Author(s):  
Cleomar Gomes da Silva ◽  
Rafael Cavalcanti de Araújo
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Real Interest Rate ◽  
Design Methodology ◽  
Macroeconomic Model ◽  
Natural Rate ◽  
Content Type ◽  
Natural Rate Of Interest ◽  
The Interest Rate ◽  
Definition Of

Purpose The purpose of this paper is to analyze the conduct of monetary policy in Brazil and estimate the country’s neutral real interest rate. Design/methodology/approach The authors make use of a state-space macroeconomic model representation. Findings The period of analysis goes from 2003 up to the end of 2013 and the results show that the country’s natural rate of interest was around 4.2 percent in December 2013. Originality/value One of the main differences of this work is the inclusion of variables such as the real exchange rate and world interest rate. This is important because these variables play an important role in the definition of the interest rate and, consequently, in the definition of the neutral interest rate.

scholarly journals Safe Assets, Liquidity, and Monetary Policy

2017 ◽  
Vol 9 (2) ◽  
pp. 182-227 ◽  
Author(s):  
Pierpaolo Benigno ◽  
Salvatore Nisticò
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Risk Sharing ◽  
Balance Sheet ◽  
Multiple Assets ◽  
Interest Rate Spreads ◽  
The Interest Rate ◽  
Liquidity Shock ◽  
Deep Recession

This paper studies monetary policy in models where multiple assets have different liquidity properties: safe and “pseudo-safe” assets coexist. A shock worsening the liquidity properties of the pseudo-safe assets raises interest rate spreads and can cause a deep recession-cum-deflation. Expanding the central bank’s balance sheet fills the shortage of safe assets and counteracts the recession. Lowering the interest rate on reserves insulates market interest rates from the liquidity shock and improves risk sharing between borrowers and savers. (JEL E31, E32, E43, E44, E52)

scholarly journals The Ability of Selected European Countries to Face the Impending Economic Crisis Caused by COVID-19 in the Context of the Global Economic Crisis of 2008

2020 ◽  
Vol 13 (8) ◽  
pp. 179
Author(s):  
Róbert Oravský ◽  
Peter Tóth ◽  
Anna Bánociová
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Economic Crisis ◽  
Economic Effects ◽  
European Countries ◽  
Consumer Confidence ◽  
Negative Consequences ◽  
Confidence Index ◽  
The Interest Rate ◽  
The Impact

This paper is devoted to the ability of selected European countries to face the potential economic crisis caused by COVID-19. Just as other pandemics in the past (e.g., SARS, Spanish influenza, etc.) have had negative economic effects on countries, the current COVID-19 pandemic is causing the beginning of another economic crisis where countries need to take measures to mitigate the economic effects. In our analysis, we focus on the impact of selected indicators on the GDP of European countries using a linear panel regression to identify significant indicators to set appropriate policies to eliminate potential negative consequences on economic growth due to the current recession. The European countries are divided into four groups according to the measures they took in the fiscal consolidation of the last economic crisis of 2008. In the analysis, we observed how the economic crisis influences GDP, country indebtedness, deficit, tax collection, interest rates, and the consumer confidence index. Our findings include that corporate income tax recorded the biggest decline among other tax collections. The interest rate grew in the group of countries most at risk from the economic crisis, while the interest rate fell in the group of countries that seemed to be safe for investors. The consumer confidence index can be considered interesting, as it fell sharply in the group of countries affected only minimally by the crisis (Switzerland, Finland).

scholarly journals Interest rates and prices causality in the Czech Republic – Granger approach

2009 ◽  
Vol 55 (No. 7) ◽  
pp. 347-356 ◽  
Author(s):  
J. Poměnková ◽  
S. Kapounek
Keyword(s):  
Monetary Policy ◽  
Czech Republic ◽  
Interest Rate ◽  
Interest Rates ◽  
Inflation Rate ◽  
Aggregate Demand ◽  
Real Economy ◽  
Investment Activity ◽  
The Czech Republic ◽  
The Interest Rate

Monetary policy analysis concerns both the assumptions of the transmission mechanism and the direction of causality between the nominal (i.e. the money) and real economy. The traditional channel of monetary policy implementation works via the interest rate changes and their impact on the investment activity and the aggregate demand. Altering the relationship between the aggregate demand and supply then impacts the general price level and hence inflation. Alternatively, the Post-Keynesians postulate money as a residual. In their approach, banks credit in response to the movements in investment activities and demand for money. In this paper, the authors use the VAR (i.e. the vector autoregressive) approach applied to the “Taylor Rule” concept to identify the mechanism and impact of the monetary policy in the small open post-transformation economy of the Czech Republic. The causality (in the Granger sense) between the interest rate and prices in the Czech Republic is then identified. The two alternative modelling approaches are tested. First, there is the standard VAR analysis with the lagged values of interest rate, inflation and economic growth as explanatory variables. This model shows one way causality (in the Granger sense) between the inflation rate and interest rate (i.e. the inflation rate is (Granger) caused by the lagged interest rate). Secondly, the lead (instead of lagged) values of the interest rate, inflation rate and real exchange rate are used. This estimate shows one way causality between the inflation rate and interest rate in the sense that interest rate is caused by the lead (i.e. the expected future) inflation rate. The assumptions based on money as a residual of the economic process were rejected in both models.

scholarly journals An Insight Regarding Economic Growth and Monetary Policy in Romania

2015 ◽  
Vol 62 (s1) ◽  
pp. 85-95 ◽  
Author(s):  
Valentina Mera ◽  
Monica Pop Silaghi
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Interest Rate ◽  
Sacrifice Ratio ◽  
National Bank ◽  
Potential Gdp ◽  
The Interest Rate ◽  
The Cost ◽  
The Impact ◽  
The Sacrifice

Abstract This study introduces some aspects regarding the link between monetary policy and economic growth, through a rule well known in the literature which is named Taylor’s rule and through the concept of sacrifice ratio which encompasses the impact of the cost of disinflation on the economic growth of a country. In this paper, we rely on estimates of the growth of potential GDP of the National Bank of Romania for the period 2003-2006 while for the period 2007-2012 we rely on the estimates reported by the International Monetary Fund. Thus, we carry a deterministic exercise for computing the interest rate on the period 2003-2012 as depicted from the Taylor’s rule and we compare it with the effective monetary policy interest rate used by the National Bank of Romania. In the same time, we calculate the sacrifice ratio for the period 1997-2013 so as to be able to form an opinion regarding the cost of disinflation and its comparison with the typical estimates for larger time spans and for other countries.

scholarly journals COMPARISON OF THE PASS-THROUGH SPEED MODELS OF DIFFERENT MARKETS: AN EMPIRICAL STUDY OF THE MARKETS OF MAINLAND CHINA AND TAIWAN

2020 ◽  
Author(s):  
Chi Ming Ho ◽  
Wu Yih Lin
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Mainland China ◽  
Rate Sensitivity ◽  
Interest Rate Spread ◽  
Spread Model ◽  
Pass Through ◽  
Loan Interest Rates ◽  
The Interest Rate

This paper adopted the Boone Indicator, developed by Boone et al. (2008) and Van Leuvensteijn et al. (2011; 2013), to investigate the influence of different pass-through spread models in the competition among banks in emerging markets. With the market share of banks as a dependent variable and marginal cost as an independent variable, this paper probed into the competition among banks regarding the loan market to determine whether competition on the loan interest rates of banks affected the pass-through of monetary policy-related interest rates. After analyzing approximately 5,657 entries of records of the banking industries in Taiwan and mainland China, this paper reached three significant conclusions: 1) the Boone Indicator Model pointed out that, competition in the banking market of mainland China was more intense than that of Taiwan; 2) empirical research based on the Interest Rate Spread Model indicated that the spread of mainland China was lower than that of Taiwan; 3) the Passthrough Speed Model implied that, the interest rate sensitivity of the market of mainland China was higher than that of the Taiwan market. The above results indicate that the influence of monetary policy pass-through on the interest rate of the market in mainland China is faster than in Taiwan.  

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