Monetary policy rule in inflation targeting emerging European countries: A discrete choice approach

Aleksandra Nojković and Pavle Petrović

Journal of Policy Modeling, 2015, vol. 37, issue 4, 577-595

Abstract: The paper explores all six emerging European countries that target inflation, showing that a discrete choice model captures well the behavior of their central banks, both their monetary policy rule and operational behavior. As to the latter, our findings suggest that these central banks change their policy rates in discrete fashion, i.e. only when the deviation between its (unobservable) optimal rate and actual rate surpasses certain threshold values. Estimates of Taylor rule contain relevant economic variables, including real exchange rate. However, evidence is offered that in Romania, Serbia and Albania the exchange rate is a goal for itself, while in the Czech Republic, Poland and Hungary it is an instrument to achieve inflation target, and this is related to different features of these two sets of economies. The use of the nonstationary discrete choice approach is well motivated as some explanatory variables are nonstationary.

Keywords: Monetary policy Taylor rule; Inflation targeting; Exchange rate; Emerging Europe; Nonstationary discrete choice model (search for similar items in EconPapers)
JEL-codes: C25 E52 P24 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0161893815000502
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:37:y:2015:i:4:p:577-595

DOI: 10.1016/j.jpolmod.2015.03.016

Access Statistics for this article

Journal of Policy Modeling is currently edited by A. M. Costa

More articles in Journal of Policy Modeling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().