 Monetary policy reactions and the exchange rate: a regime-switching structural VAR for CanadaRonald H. Lange International Review of Applied Economics, 2013, vol. 27, issue 5, 612-632 Abstract: The objective of this study is to identify monetary policy reactions in a nonlinear, structural vector autoregression (VAR) framework, with regime-switching contemporaneous policy responses in a small open economy. The key finding is that monetary policy in Canada responds contemporaneously to disturbances in the real exchange rate, as well as the output gap and inflation. The Bank of Canada is found to have much larger responses to exchange rate fluctuations during volatile periods than more stable periods. However, the Bank is found statistically to have a relatively linear reaction function with symmetric responses to output and inflation shocks across interest rate regimes. The estimates for the contemporaneous responses to the output gap in both regimes are found to be virtually identical to the 0.5 weights in the original Taylor rule for the United States, while the responses to inflation surprises are slightly smaller. Overall, the Bank of Canada is found to have operated within the range of optimal responses suggested by small-scale structural models in the normative literature on monetary policy rules. Date: 2013 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:irapec:v:27:y:2013:i:5:p:612-632 Ordering information: This journal article can be ordered from DOI: 10.1080/02692171.2012.752446 Access Statistics for this article International Review of Applied Economics is currently edited by Professor Malcolm Sawyer More articles in International Review of Applied Economics from Taylor & Francis Journals |
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