Estimation of New Keynesian Monetary Policy Reaction Function: Availability of Taylor Rule, McCallum Rule and Hybrid Taylor-McCallum Rule in Turkish Economy

2013 ◽  
Vol 24 (89) ◽  
pp. 45 ◽  
Author(s):  
Hakan ARDOR ◽  
Serdar VARLIK
Keyword(s):  
Monetary Policy ◽  
Taylor Rule ◽  
New Keynesian ◽  
Reaction Function ◽  
Turkish Economy ◽  
Monetary Policy Reaction Function ◽  
Policy Reaction Function

Endogeneity of Monetary Policy Reaction Fun~tion: An Experience from Pakistan's Economy

1991 ◽  
Vol 30 (4II) ◽  
pp. 931-941
Author(s):  
M. Aynul Hasan ◽  
Qazi Masood Ahmed
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Money Supply ◽  
Relative Effectiveness ◽  
Reaction Function ◽  
Standard Result ◽  
Policy Variable ◽  
Target Values ◽  
Monetary Policy Reaction Function ◽  
Policy Reaction Function

Monetary policy, in general, refers to those steps taken by the Central Bank to achieve such broader objectives of the economy as growth, employment, external balance and price stability through changes in the money supply, interest rates and credit policies. The money supply thus created by the Central Bank should be in response to the changes in key macroeconomic target variables such as GNP, balance of payments, inflation, internal debt and unemployment. Indeed, a properly estimated monetary policy reaction function can provide useful information regarding such matters as to whether the Central Bank, in fact, has been systematically accommodating to the changes in the target variables. The reaction function can also provide insight into the question as to what should be the relevant indicators of the monetary policy. In addition, as argued by Havrilesky (1967), it may also play a crucial role in the formulation of long-term monetary policy strategy. The other important consideration in the development of a monetary policy reaction function pertains to the endogeneity of the monetary policy. As pointed out by Goldfeld and Blinder (1972), if a policy variable responds to the lagged (or expected) target values, then considering such a policy variable as exogenous would not only introduce the problem of misspecification but will also produce serious biases in the parameters estimated from those models. In particular, if the monetary policy variable happens to be strongly influenced by target variables, then the standard result of the relative effectiveness of the monetary policy vis-a-vis fiscal policy can be questionable on the grounds of reverse causation problem.

FINANCIAL STABILITY AND MONETARY POLICY REACTION FUNCTION FOR SOUTH ASIAN COUNTRIES: AN ECONOMETRIC APPROACH

2019 ◽  
pp. 1-30
Author(s):  
SAMIA NASREEN ◽  
SOFIA ANWAR
Keyword(s):  
Monetary Policy ◽  
South Asian ◽  
Financial Stability ◽  
Central Banks ◽  
Series Data ◽  
Reaction Function ◽  
Asian Countries ◽  
Policy Objective ◽  
Monetary Policy Reaction Function ◽  
Policy Reaction Function

This study empirically investigates a monetary policy reaction function for South Asian economies by incorporating financial stability as an additional policy objective in the central bank’s loss function. Empirical results are estimated by applying auto-regressive distributed lag (ARDL) approach to cointegration and vector autoregressive (VAR) approach using time-series data of five South Asian countries, namely, Pakistan, India, Bangladesh, Nepal and Sri Lanka. Estimated results indicate that monetary policy significantly reacts to the level of financial stability in all countries. The result further suggests that central banks would tighten monetary policy if output gap widens and exchange rate depreciate. In addition, central banks of Pakistan and India do not respond significantly to inflation gap.

scholarly journals Monetary Policy Reaction Function and Sterilization of Capital Inflows: An Analysis of Asian Countries

2011 ◽  
Vol 7 (9) ◽  
Author(s):  
Muhammad Saim Hashmi ◽  
Changsheng Xu ◽  
Muhammad Mahroof Khan ◽  
Mohsin Bashir ◽  
Faheem Ghazanfar
Keyword(s):  
Monetary Policy ◽  
Capital Inflows ◽  
Reaction Function ◽  
Asian Countries ◽  
Monetary Policy Reaction Function ◽  
Policy Reaction Function

The Euler equation around the world

2017 ◽  
Vol 17 (2) ◽  
Author(s):  
Livio Stracca
Keyword(s):  
Monetary Policy ◽  
Euler Equation ◽  
Sample Size ◽  
New Keynesian ◽  
Reaction Function ◽  
The World ◽  
Financial Liberalisation ◽  
Monetary Policy Reaction Function ◽  
Relevant Finding ◽  
Over Time

AbstractThis paper discusses the empirical challenges associated with the estimation of the New Keynesian IS curve and provides an estimate of the forward looking IS curve by pooling macro data from 31 countries, delivering over 4000 observations on which to test the specification. The main finding of the paper is that it is possible to recover the theory-consistent IS curve from macro data when the sample size is large enough and the intrument is valid and strong. I also test the validity of the instruments by comparing estimates in countries which have or do not have an independent monetary policy reaction function. Another relevant finding is that the slope of the IS curve appears to have steepened over time since the 1990s, probably reflecting financial liberalisation.

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