THE IMPACT OF INSTITUTIONAL QUALITY ON MONETARY POLICY RESPONSE FUNCTION: EVIDENCE FROM DEVELOPED AND DEVELOPING ECONOMIES

Aimal Khan Kakar (), Muhammad Zeeshan Younas and Wasim Shahid Malik ()
Additional contact information
Aimal Khan Kakar: School of Economics, Quaid-I-Azam University Islamabad, Pakistan
Muhammad Zeeshan Younas: School of Economics, Quaid-I-Azam University Islamabad, Pakistan
Wasim Shahid Malik: School of Economics, Quaid-I-Azam University Islamabad, Pakistan

The Singapore Economic Review (SER), 2024, vol. 69, issue 08, 2419-2443

Abstract: There is a plethora of empirical evidence available which postulates that the central banks across the world respond asymmetrically to inflation. The response of monetary authorities toward inflation changes, when it reaches a threshold level. After estimating the nonlinear Taylor rule for 51 countries over the period of 1983–2015, including 28 advanced economies and 23 emerging and developing economies, we come to the conclusion that the quality of political institutions has a significant impact on the threshold level of the inflation rate. In contrast to the countries with weak institutional quality, countries with high institutional quality have a very low level of inflation rate where monetary authorities change their behavior. Our finding further reveals that the countries with low corruption, stable governments, efficient bureaucracy and good socio-economic conditions have a very low level of inflation rate. Central banks respond aggressively in these countries when inflation exceeds a threshold level inflation rate. The socio-economic condition index has a greater impact on the inflation threshold level as compared to other sub-indexes of institutional quality. The findings imply that the improvement in institutional quality enables the central banks to keep inflation at a low level.

Keywords: Monetary policy; Taylor rule; institutional quality; LSTAR modeling (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0217590820500769
Access to full text is restricted to subscribers

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:wsi:serxxx:v:69:y:2024:i:08:n:s0217590820500769

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0217590820500769

Access Statistics for this article

The Singapore Economic Review (SER) is currently edited by Euston Quah

More articles in The Singapore Economic Review (SER) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().