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Monetary policy rules in emerging countries: is there an augmented nonlinear Taylor rule?

Caporale, G.M.; Helmi, H.M.; Çatık, A.N.; Ali, F.M.; Akdeniz, C.

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Authors

G.M. Caporale

H.M. Helmi

A.N. Çatık

F.M. Ali

C. Akdeniz



Abstract

This paper examines the Taylor rule in five emerging economies, namely Indonesia, Israel, South Korea, Thailand, and Turkey. In particular, it investigates whether monetary policy in these countries can be more accurately described by (i) an augmented rule including the exchange rate, as well as (ii) a nonlinear threshold specification (estimated using GMM), instead of a baseline linear rule. The results suggest that the reaction of monetary authorities to deviations from target of either the inflation or the output gap differs in terms of the size and/or statistical significance of the coefficients in the high and low inflation regimes in all countries. In particular, the exchange rate has an impact in the former but not in the latter regime. Overall, an augmented nonlinear Taylor rule appears to capture more accurately the behaviour of monetary authorities in these countries.

Citation

Caporale, G., Helmi, H., Çatık, A., Ali, F., & Akdeniz, C. (2018). Monetary policy rules in emerging countries: is there an augmented nonlinear Taylor rule?. Economic Modelling, 72, 306-319. https://doi.org/10.1016/j.econmod.2018.02.006

Journal Article Type Article
Acceptance Date Feb 11, 2018
Online Publication Date Feb 23, 2018
Publication Date Jun 1, 2018
Deposit Date Apr 5, 2018
Publicly Available Date Mar 29, 2024
Journal Ecological Modelling
Print ISSN 0264-9993
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 72
Pages 306-319
DOI https://doi.org/10.1016/j.econmod.2018.02.006
Public URL https://durham-repository.worktribe.com/output/1335516

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