Are Eastern European Taylor Reaction Functions Asymmetric in Inflation or Output: Empirical Evidence for four Countries

Jens Klose

MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: Do central banks in Eastern European countries react asymmetrically and in a non-linear fashion to changes in inflation and output? We tackle this question by expanding the standard Taylor reaction function for the four inflation targeting countries Czech Republic, Hungary, Poland and Romania. We do so taking explicitly inflation rates below or above target and output below or above potential, the so-called state of the economy, into account. The results reveal that there are indeed substantial asymmetries in the reaction function of the Czech, Polish and Romanian central bank, which are only evident when the combination of inflation and output thresholds is explicitly modelled in one estimation equation. For these three central banks also non-linearities in the inflation and output response could be verified.

Keywords: Taylor reaction function; Asymmetries; Eastern European countries (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2018
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac, nep-mon and nep-tra
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Journal Article: Are Eastern European Taylor Reaction Functions Asymmetric in Inflation or Output? Empirical Evidence for Four Countries (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:201808

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