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Characterizing monetary and fiscal policy rules and interactions when commodity prices matter

Chuku Chuku () and Paul Middleditch ()

Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The Univeristy of Manchester

Abstract: Using conventional rules to characterize policy behaviour in emerging market economies requires innovations capable of capturing distinctive structural characteristics. We examine the extent to which commodity price fluctuations matter for monetary and fiscal policy formulation in high primary commodity export economies. Markov mixture specifications of monetary and fiscal policy rules stylized to account for commodity price slacks are estimated using specifically designed Bayesian techniques. We find that policy authorities indeed respond to commodity price slacks but with variations depending on the policy regime in place and country. The results hold implications for the correct specification of policy rules and interactions in DSGE models for such economies.

New Economics Papers: this item is included in nep-dge and nep-mon
Date: 2016
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