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

Caporale, G.M. and Helmi, H.M. and Çatık, A.N. and Ali, F.M. and Akdeniz, C. (2018) 'Monetary policy rules in emerging countries : is there an augmented nonlinear Taylor rule?', Economic modelling., 72 . pp. 306-319.

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.

Item Type:Article
Full text:(AM) Accepted Manuscript
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Status:Peer-reviewed
Publisher Web site:https://doi.org/10.1016/j.econmod.2018.02.006
Publisher statement:© 2018 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/)
Date accepted:11 February 2018
Date deposited:06 April 2018
Date of first online publication:23 February 2018
Date first made open access:No date available

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