An Unobserved Components Model of the Monetary Transmission Mechanism in a Small Open Economy
Francis Vitek ()
Macroeconomics from University Library of Munich, Germany
This paper develops and estimates an unobserved components model for purposes of monetary policy analysis and inflation targeting in a small open economy. Cyclical components are modeled as a multivariate linear rational expectations model of the monetary transmission mechanism, while trend components are modeled as unobserved components while ensuring the existence of a well defined balanced growth path. Full information maximum likelihood estimation of this unobserved components model, conditional on prior information concerning the values of trend components, provides a quantitative description of the monetary transmission mechanism in a small open economy, yields a mutually consistent set of indicators of inflationary pressure together with confidence intervals, and facilitates the generation of relatively accurate forecasts.
Keywords: Monetary policy analysis; Inflation targeting; Small open economy; Unobserved components model; Indicators of inflationary pressure; Monetary transmission mechanism; Forecast performance evaluation (search for similar items in EconPapers)
JEL-codes: E52 F41 F47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac and nep-mon
Date: 2005-12-27, Revised 2006-02-06
Note: Type of Document - pdf; pages: 44
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0512019
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