Based on a more realistic assumption, we modify the Taylor regression. The modified Taylor regression gives an explanation of why the (standard) Taylor regression is spurious (in the econometric sense, i.e. no stable relationship among the variables of interest) and, at the same time, a solution...

In this paper we systematically evaluate how central banks respond to deviations from the inflation target. We present a stylized New Keynesian model in which agents' inflation expectations are sensitive to deviations from the inflation target. To (re-) establish credibility, monetary policy...

The identification of central banks (CBs) behavior in setting interest rates may give a conclusive image on both the objectives and on their prioritization. A standard approach in this respect is the estimation of a CB reaction function as a Taylor rule. Since the formulation of the original...

Yes. By using real-time structure break monitoring techniques we find evidence against monotonic response pattern, specifically three response structures of US stock market to the federal monetary policy actions based on a sample from 1989-2010. We re-estimate the market response in each of the...

This paper studies the monetary policy of the Federal Reserve (Fed) and the European Central Bank (ECB) with respect to stock or/and foreign exchange markets from 1979 to 2009. I find that during the Greenspan era stock markets played a role in US monetary policy. The Fed lowered interest rates...

This paper argues that considerable switches in monetary policy are able to explain a major part of the forward discount puzzle. We build a theoretical model suggesting that violations of the uncovered interest rate parity are owed to shifts in monetary policy from a destabilizing (when the...

Abstract After decades using monetary aggregates as the main instrument of monetary policy and having different varieties of crawling peg exchange rate regimes, Colombia adopted a full-fledged inflation-targeting (IT) regime in 1999, with inflation as the nominal anchor, a floating exchange...

This paper contributes to the empirical understanding of monetary policy in five dimensions. First, specifiying a generalized Taylor equation that nests backward and forward-looking inflation and activity variables in setting policy rates. Second, using real-time data. Third, estimating the...

We review extant work on the transmission of monetary policy, both conventional and unconventional, of the major advanced economies to East Asia through monetary policy reactions, integrated bond markets and induced currency appreciation. We present new results on the growth of foreign currency...

A time-varying natural rate of interest is estimated for the euro area using a multivariate unobserved components model. The problem of aggregating interest rate data for the pre-EMU period is directly addressed, and a simple method in order to adjust the risk premia in the interest rate data...