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Monetary Policy Rules

Empirical Applications Based on Survey Data

Series:

Dirk Bleich

This work provides different studies of how econometric evaluation of monetary policy based on forward-looking Taylor rules is conducted. The first part discusses theoretical results regarding the Taylor principle and can be used as a guideline for the evaluation of the following three empirical applications based on survey data of Consensus Economics. The first application deals with the question whether the introduction of inflation targeting affects monetary policy. The second application investigates the consequences of oil price movements for monetary policy. The third application analyzes monetary policy conditions in Spain before and after the changeover to the Euro by estimating forward-looking Taylor rules.

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2.1 Determinacy for a forward-looking Taylor rule . . . . . . . . . 31 2.2 E-stability for a forward-looking Taylor rule . . . . . . . . . . 39 3.1 Inflation target, interest rate, expected and actual inflation rate in Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 3.2 Inflation target, interest rate, expected and actual inflation rate in Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 3.3 Inflation target, interest rate, expected and actual inflation rate in South Africa . . . . . . . . . . . . . . . . . . . . . . . . 51 3.4 Inflation coefficient for the (pre-)inflation targeting period . . 56 3.5 Time-varying inflation coefficient α1,t . . . . . . . . . . . . . . 65 3.6 Time-varying output coefficient α2,t . . . . . . . . . . . . . . . 66 4.1 Inflation target, interest rate, expected and actual inflation rate in Canada . . . . . . . . . . . . . . . . . . . . . . . . . . 72 4.2 Inflation target, interest rate, expected and actual inflation rate in the UK . . . . . . . . . . . . . . . . . . . . . . . . . . 72 4.3 Inflation target, interest rate, expected and actual inflation rate in in the USA . . . . . . . . . . . . . . . . . . . . . . . . 73 4.4 Inflation target, interest rate, expected and actual inflation rate in in the Euro Area . . . . . . . . . . . . . . . . . . . . . 73 5.1 Mortgage interest rates . . . . . . . . . . . . . . . . . . . . . . 78 5.2 Consumer price index and house price index . . . . . . . . . . 79 5.3 Inflation expectations and nominal interest rates . . . . . . . . 87 5.4 EONIA and hypothetical interest rate . . . . . . . . . . . . . . 89 5.5 Spread between interest rates implied by different Taylor rules and the EONIA . . . . . . . . . . . . . . . . . . . . . . . . . . 91 5.6 Inflation expectations and nominal interest rates . . . . . . . . 92 5.7 Actual and hypothetical mortgage real interest rate . . . . . . 94 5.8 Actual and Simulated Housing Starts . . . . . . . . . . . . . . 96

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