Browsing by Subject "Taylor rule"

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  • Korhonen, Iikka; Nuutilainen, Riikka (2016)
    BOFIT Discussion Papers 2/2016
    We estimate several monetary policy rules for Russia for the period 2003–2015. We find that the traditional Taylor rule describes the conduct of monetary policy in Russia reasonably well, whether coefficients are restricted to being the same or allowed to change over the sample period. We find that the Bank of Russia often overshot its inflation target and that extensive overshooting is associated with large depreciations of the ruble, testifying to the importance of the exchange rate in the conduct of monetary policy in Russia.
  • Nuutilainen, Riikka; Korhonen, Iikka (2017)
    Russian Journal of Economics 4
    BOFIT Policy Brief 9/2017
    This study estimates whether the monetary policy rules of Bank of Russia have changed recently. Russia has moved towards inflation targeting over the past years, which is reflected in our empirical estimations. We start by estimating various monetary policy rules for Russia, concluding that a variant of the Taylor rule depicts Bank of Russia's monetary policy over the past decade well. Moreover, there have been two clear breaks in the coefficients of the estimated monetary policy rule, possibly signifying a shift towards traditional inflation targeting and also the current recent economic turbulence.
  • Bank of Finland (2017)
    Bank of Finland. Bulletin 4/2017
    Euro area monetary policy has provided the economy with strong support in recent years. Many traditional guidelines used for evaluating the policy stance, such as the Taylor rule, would call for a more restrictive form of monetary policy. However, a number of variations can be derived from the relatively simple base formula underlying the Taylor rule, providing alternative paths for benchmark interest rates. Thus we could argue that recent monetary policy has not, in fact, significantly deviated from interest rate paths that are consistent with variations of the Taylor rule. The economy has recently undergone changes that provide justification for the more accommodative policy stance. Thus, monetary policy cannot solely be determined on the basis of simplistic rules.
  • Nuutilainen, Riikka (2015)
    BOFIT Discussion Papers 10/2015
    Published in Pacific Economic Review, Volume 20, Issue 3, pages 461–486, August 2015 as Contemporary Monetary Policy in China: An Empirical Assessment.
    ​This paper focuses on monetary policy in China. A set of different specifications for the monetary policy reaction function are empirically evaluated using monthly data for 1999––2012. Variation is allowed both in the policy targets as well as in the monetary policy instrument itself. Overall, the performance of the estimated policy rules is surprisingly good. Chinese monetary policy displays countercyclical reactions to in‡ation and leaning-against-the-wind behaviour. The paper shows that there is a notable increase in the overall responsiveness of Chinese monetary policy over the course of the estimation period. The central bank interest rate is irresponsive to economic conditions during the earlier years of the sample but does respond in the later years. This finding supports the view that the monetary policy settings of the People's Bank of China have come to place more weight on price-based instruments. A time-varying estimation procedure suggests that the two monetary policy objectives are assigned to different instruments. The money supply instrument is utilised to control the price level and (after 2008) the interest rate instrument has been used to achieve the targeted output growth.
  • Haavio, Markus; Jalasjoki, Pirkka; Kilponen, Juha; Paloviita, Maritta (2021)
    International Journal of Central Banking 2 (June)
    Published also in BoF DP 29/2017
    Using unique real-time quarterly macroeconomic projections of the Eurosystem/ECB staff, we estimate competing specifications of the ECB's monetary policy reaction function. We consider specifications which include inflation and output growth projections, a past inflation gap, a time-varying natural real interest rate, and different inflation targets. Our first key finding is that the de facto inflation target of the ECB lies between 1.6 percent and 1.8 percent. Our second key finding is that the ECB reacts both to short-term macroeconomic projections and to past deviations of inflation from its de facto target.
  • Paloviita, Maritta; Haavio, Markus; Jalasjoki, Pirkka; Kilponen, Juha (2017)
    Bank of Finland Research Discussion Papers 29/2017
    Published in International Journal of Central Banking 2021 ; 17 ; 2 ; June
    We estimate the ECB’s monetary policy reaction function by using real time Eurosystem/ECB staff macroeconomic projection data, which are presented to the ECB’s Governing Council when it assesses the monetary policy stance in the euro area. Alternative specifications of the reaction function account for a possible credibility loss due to persistent deviations of past inflation from the ECB’s inflation target. The results provide support for two alternative interpretations of the definition of price stability. First, the ECB dislikes inflation rates above two percent more than rates below two percent. Second, the ECB policy responses to past inflation gaps are symmetric with respect to a target of 1.6 - 1.7 percent. The out-of-sample predictions of the reaction function based on the second interpretation of the definition of price stability track well an estimated shadow interest rate during the zero lower bound period.