Monetary policy inertia: More a fiction than a fact?

Agostino Consolo and Carlo Favero ()

Journal of Monetary Economics, 2009, vol. 56, issue 6, 900-906

Abstract: Empirical estimates of monetary policy reaction functions feature a very high estimated degree of monetary policy inertia. This evidence is very hard of reconcile with the alternative evidence of low predictability of monetary policy rates. In this paper we examine the potential relevance of the problem of weak instruments to correctly identify the degree of monetary policy inertia in forward-looking monetary policy reaction function of the type originally proposed by Taylor [1993. Discretion versus policy rules in practice. Canergie-Rochester Conference Series on Public Policy, 39, 195-214]. After appropriately diagnosing and taking care of the weak instruments problem, we find an estimated degree of policy inertia which is significantly lower than the common value in the empirical literature on monetary policy rules.

Keywords: Monetary; policy; rules; Policy; gradualism; Generalized; method; of; moments; Weak; identification (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (49)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304-3932(09)00081-6
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Monetary Policy Inertia: More a Fiction than a fact? (2009)
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:moneco:v:56:y:2009:i:6:p:900-906

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

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