A multiple threshold analysis of the Fed's balancing act during the Great Moderation

Ahmad, Saad

doi:10.1016/j.econmod.2016.02.013

Cited by 23 publications

(20 citation statements)

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“…The set of instrument includes a constant and the sixth, the ninth and the twelfth lags of each variable in the estimated models. The horizons of the real effective exchange rate, and output and inflation gaps are, respectively, the 3-month lead average of the real exchange rate, and output and inflation gaps (Svensson, 1997;Martin and Milas, 2013;Ahmad, 2016). ***, ** and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively. ]…”

Section: Discussionmentioning

confidence: 99%

“…Further, a nonlinear specification has been estimated using GMM to allow for possible asymmetries, following recent empirical studies (see Favero et al, 2000, Taylor andDavradakis, 2006;Surico, 2007;Cukierman and Muscatelli, 2008;Castro, 2011;Martin andMilas, 2004, 2013;Ahmad, 2016, among others).…”

Section: Discussionmentioning

confidence: 99%

“…For instance, policy responses might be different depending on the phase of the cycle, with output stabilisation being given more importance during recessions and inflation being instead the main concern during expansions (Cukierman and Gerlach, 2003;Ahmad, 2016). Dolado et al (2000) found that the central banks of Spain,6 France and Germany are less responsive to inflation when it is below as opposed to above target.…”

Section: The Augmented Taylor Rulementioning

confidence: 99%

“…It is assumed that policy makers respond to forecasts of inflation, the output gap and the exchange rate over the coming quarter, therefore a 3-month lead average is used for these variables in the estimation (Svensson, 1997;Martin and Milas, 2013;Ahmad, 2016).…”

Section: The Linear Taylor Rulementioning

confidence: 99%

“…These can arise either from nonlinear macroeconomic relationships (see Robert-Nobay and Peel, 2003;Dolado et al, 2005, among others) or from asymmetric preferences or objectives of policymakers (see Favero et al, 2000, Taylor andDavradakis, 2006;Surico, 2007;Cukierman and Muscatelli, 2008;Castro, 2011;Martin andMilas, 2004, 2013;Ahmad, 2016).…”

Section: Introductionmentioning

confidence: 99%

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Monetary Policy Rules in Emerging Countries: Is There an Augmented Nonlinear Taylor Rule?

et al. 2016

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis 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 varies in terms of magnitude and/or statistical significance across 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.

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Section: Discussionmentioning

confidence: 99%

Section: Discussionmentioning

confidence: 99%

Section: The Augmented Taylor Rulementioning

confidence: 99%

Section: The Linear Taylor Rulementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Monetary Policy Rules in Emerging Countries: Is There an Augmented Nonlinear Taylor Rule?

et al. 2016

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Identifying a robust policy rule for the Fed's response to financial stress

Ahmad

2019

Int. J Fin Econ

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We seek to identify a policy rule for the Fed that remains valid in both periods of high and low financial stress. Using real-time data, we examine traditional linear Taylor rules, Taylor rules augmented with a financial stress measure, and nonlinear Taylor rules for the Fed's response in the pre-crisis period that lasts from 1982 to 2007. We determine that financial conditions were a significant source of nonlinearity in the Fed's response during this period, with greater volatility in the financial sector causing the Fed to prioritize the stabilisation of financial markets over its traditional policy objectives. We then extend the analysis to include the financial crisis of 2008 and find that our nonlinear Taylor rule framework also provides a plausible explanation for the Fed's conduct of monetary policy over this period. Our results, thus, show that the Fed's reaction to the recent financial crisis was not that dissimilar from its response to previous episodes of financial stress.

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Effects of monetary policy on the skill premium and the growth rate in a directed technical change model with heterogeneous cash‐in‐advance constraints

Afonso

Lima

2022

Int. J Fin Econ

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This article analyses the balanced‐growth‐path effects of monetary policy (inflation) on the skill premium and the growth rate in the context of a directed technical change model with cash‐in‐advance (CIA) constraints specific to the unskilled and skilled sectors. Calibrating the model using data from 36 countries, the presence of more stringent CIA constraints in the unskilled sector, as supported by the literature, causes inflation to have a positive effect on the skill premium. Moreover, it also increases the negative impact of inflation on the growth rate in relation to the baseline scenario of homogeneous CIA constraints. A lower labour share and higher inflation in general magnify these effects on both variables while a relative lower importance of the unskilled sector does the opposite with respect to the skill premium. Therefore this article innovates in three important ways: (i) we add an additional channel through which inflation affects inequality; (ii) we highlight the importance of avoiding ignoring differences of liquidity constraints across the economy in the context of endogenous growth models to not underestimate the negative long‐run impacts of inflation; (iii) the results suggest that developing countries that have difficulty in achieving price stability in the long‐run can mitigate the negative effects of inflation by reducing constraints faced by the unskilled sector and promoting the development of the skilled sector.

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A multiple threshold analysis of the Fed's balancing act during the Great Moderation

Cited by 23 publications

References 47 publications

Monetary Policy Rules in Emerging Countries: Is There an Augmented Nonlinear Taylor Rule?

Monetary Policy Rules in Emerging Countries: Is There an Augmented Nonlinear Taylor Rule?

Identifying a robust policy rule for the Fed's response to financial stress

Effects of monetary policy on the skill premium and the growth rate in a directed technical change model with heterogeneous cash‐in‐advance constraints

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