The Relevance of International Spillovers and Asymmetric Effects in the Taylor Rule

The influence of government ideology on monetary policy: New cross‐country evidence based on dynamic heterogeneous panels

“…Another important issue for future research is the possibility that central bank behavior may be asymmetric (see, for instance, Brüggemann & Riedel, ). Central bank reaction functions (and the reaction coefficients contained therein) can, for instance, be different in periods of expansionary and contractionary monetary policy (see, for instance, Beckmann, Belke, & Dreger, ). However, it is important that in examining these issues the reaction functions of central banks are estimated using real‐time and forward‐looking data.…”

“…Also, traditional Taylor rule models can be adjusted to account for international spillovers (see, for instance, Beckmann et al., ). According to Taylor (), central banks no longer decide on policy rates in an independent way but policy reactions have been increasingly affected by the international environment since then.…”

International Effects of Euro Area Versus U.S. Policy Uncertainty: A Favar Approach

“…Both regions are economically powerful and can be considered as “large” in comparison to the other countries which can be considered to be “small” in our empirical model. Therefore, U.S. and Euro area variables—especially those measuring monetary policy—can be seen as important global factors themselves and probably explain a large amount of variation in national variables (Beckmann, Belke, and Dreger ). Therefore, their inclusion in Y t further increases the probability that our FAVAR model captures all relevant dynamics in X t .…”

“…As impulse responses only contain the effect of an unexpected change (a “shock”) in a specific variable, this procedure appears especially useful for the evaluation of uncertainty effects. While monetary policy contains unanticipated changes as well as systematic changes, uncertainty measures should not contain such a systematic component (Beckmann, Belke, and Dreger ; Bernanke, Boivin, and Eliasz ). Therefore, the general critique that IRFs only estimate the effect of unexpected changes is not valid for the evaluation of uncertainty effects.…”

Politics and the UK's monetary policy

“…Considering the international spillover, Beckmann, Belke, and Dreger (2017); Belke and Cui (2010), suggest that there may be international dependencies in the interest rate setting of central banks. Thus, we take into account the lagged changes of the US interest rate to capture the international linkage.…”