Monetary regime change and business cycles

Vasco Cúrdia and Daria Finocchiaro

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 4, 756-773

Abstract: This paper proposes a method to structurally estimate a model with a regime shift and evaluates the importance of acknowledging the break in the estimation. We estimate a DSGE model on Swedish data taking into account the regime change in 1993, from exchange rate targeting to inflation targeting. Ignoring the break leads to spurious estimates. Accounting for the break suggests that monetary policy reacted strongly to exchange rate movements in the first regime, and mostly to inflation in the second. The sources of business cycles and their transmission mechanism are significantly affected by the exchange rate regime.

Keywords: Bayesian estimation; DSGE models; Target zone; Inflation targeting; Regime change (search for similar items in EconPapers)
JEL-codes: C1 C5 E5 F4 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Working Paper: Monetary Regime Change and Business Cycles (2012)
Working Paper: Monetary Regime Change and Business Cycles (2010)
Working Paper: Monetary regime change and business cycles (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:4:p:756-773

DOI: 10.1016/j.jedc.2012.12.004

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