The asymmetric reaction of monetary policy to inflation and the output gap: Evidence from Canada

Fiodendji, Komlan

doi:10.1016/j.econmod.2012.09.046

Cited by 25 publications

(15 citation statements)

References 39 publications

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“…These observations should not be too surprising as earlier research, albeit using different analytical frameworks and empirical methodologies, have pointed out at the asymmetric preferences of policy makers. For instance, Komlan (2013), implementing threshold regression methodology, has investigated the asymmetric preferences of the Bank of Canada with regards to inflation and output gap and shown that the asymmetry parameter associated with inflation gap is statistically significant. For the UK, Taylor and Davradakis (2006), using threshold models, have provided evidence that although the stated objective of the Bank of England is to pursue a symmetric inflation target, the policy makers in practice respond rigorously once expected inflation is significantly above the 2.5% target.…”

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confidence: 99%

Asymmetric Monetary Policy Rules for an Open Economy: Evidence from Canada and the UK

2016

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We present an analytical framework to examine the open economy monetary policy rule of a central bank under asymmetric preferences. The resulting policy rule is then empirically examined using quarterly data with regards to Canada, and the UK from 1983q1-2007q4. Our empirical investigation shows that the open economy policy rule receives support from the data and that the monetary policy makers in the UK and Canada have asymmetric preferences. Robustness checks based on model calibration provide support for the suggested policy rule.

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confidence: 99%

Asymmetric Monetary Policy Rules for an Open Economy: Evidence from Canada and the UK

2016

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“…Recently, Tawadros (2020) uses the inflation rate differential as a threshold variable and finds that monetary policy response is strong in the period of low inflation or recessions. Komlan (2013) investigates the case of canada and finds that monetary policy is more averse to a positive inflation gap.…”

Section: Empirical Studies Of a Nonlinear Taylor Rulementioning

confidence: 99%

“…In fact, the Taylor rule is nonlinear because of either a nonlinear Phillips curve (Bec et al, 2002;Dolado et al, 2005;A. Nobay and Peel, 2000;schaling, 2004) or an asymmetric preference to negative and positive shocks of inflation and output gap (Aguiar and Martins, 2008;Bec et al, 2002;caglayan et al, 2016;Dolado et al, 2004;Komlan, 2013;A. R. Nobay and Peel, 2003;surico, 2007;Tawadros, 2016Tawadros, , 2020.…”

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confidence: 99%

Asymmetry in the Reaction Function of Monetary Policy in Emerging Economies

Bui¹,

Kiss²

2020

PFQ

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The Taylor rule is an important device to study the behavior of the central bank. Conventionally, the Taylor rule is constructed by optimizing a quadratic loss function with the constraint of a linear economic system. Accordingly, the response of interest rate is linear with respect to the sign of inflation gap and output gap. In practice, however, monetary authorities in emerging economies can depart from the linear-quadratic framework. The objective of this paper is to investigate the nonlinearity of the Taylor rule driven by either a nonlinear Phillips curve or an asymmetric preference. We use the generalized method of moments (GMM) method to investigate these asymmetries in twelve emerging economies targeting inflation. The empirical results show that deflation pressure caused by economic recessions has a stronger effect on the interest rate. Moreover, the recession avoidance preference is strong in emerging economies whereas the inflation avoidance preference only emerges in a few emerging economies such as Brazil, Colombia, Hungary, Philippines, and

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“…For example, Dolado, María-Dolores, and Naveria (2004), Qifa, Xufeng, Cuixia, and Xue (2015), Kumar and Orrenius (2016) investigate the issue about a nonlinear Phillips curve whereas Nobay and Peel (2003) and Ruge-Murciá (2003), and others, examine the assumption of a quadratic loss function. More recently, Komlan (2013), Santoro, Petrella, Pfajfar, andGaffeo (2014), Anna Sznajderska (2014), Akdoğan (2015) and Rodrigo de Sáand Marcelo (2015) examine central banks asymmetric preferences. Orphanides and Wieland (2000) derive optimal reaction functions based on the assumption of nonlinearity.…”

Section: Introductionmentioning

confidence: 99%

Testing for Asymmetric Central Bank Preferences

Nyumuah¹

2018

IJEF

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The linear specification of the ideal monetary policy reaction function has been questioned in recent times by researchers. They have suggested a nonlinear framework where central banks exhibit asymmetric behaviours. Despite the important policy implications of having asymmetric central bank preferences, studies have been on single-country basis focusing almost entirely on advanced economies. The aim of this study is to check the existence of asymmetric preferences on the part of central banks in the context of a panel of countries and not just a single country. The study derives and estimates a nonlinear flexible optimal monetary policy rule, which permits zone-like as well as asymmetric behaviours using panel data from a range of countries both developed and less developed. Although the findings indicate the presence of asymmetric preferences on the output gap across less developed countries, generally, the evidence is in favour of a linear policy reaction function and symmetric central bank preferences. These findings mean that monetary policy is characterised by a linear policy rule and symmetric central bank preferences. The results also indicate that interest rate "smoothing" reaction by monetary authorities is more pronounced in less developed countries than in developed ones.

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The asymmetric reaction of monetary policy to inflation and the output gap: Evidence from Canada

Cited by 25 publications

References 39 publications

Asymmetric Monetary Policy Rules for an Open Economy: Evidence from Canada and the UK

Asymmetric Monetary Policy Rules for an Open Economy: Evidence from Canada and the UK

Asymmetry in the Reaction Function of Monetary Policy in Emerging Economies

Testing for Asymmetric Central Bank Preferences

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