The importance of output for the monetary policy rules

Ali Malik

Applied Economics Letters, 2010, vol. 17, issue 9, 917-923

Abstract: We examine the importance of variable output (Gross Domestic Product (GDP) growth rate) on the preferences of the policy makers. We do so by examining the effect of output regimes on the form of monetary policy implemented by the central banks. We use simple monetary policy rules to characterize the monetary policy of the central bank. Regime switching models are utilized to model output and monetary policy regimes separately. The importance of output is then examined for the UK and the USA by corresponding the output and monetary regimes together. We find some evidence supportive of the fact that the phase of output existent can change the preferences of the policy makers.

Date: 2010
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DOI: 10.1080/13504850802584823

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