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Monetary policy rules in emerging countries: is there an augmented nonlinear Taylor rule?

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Version 2 2023-06-12, 08:49
Version 1 2023-06-09, 12:09
journal contribution
posted on 2023-06-12, 08:49 authored by Guglielmo Maria Caporale, Mohamad Husam Helmi, Abdurrahman Nazif Catik, Faek Menla AliFaek Menla Ali, Coskun Akdeniz
This paper examines the Taylor rule in five emerging economies, namely Indonesia, Israel, South Korea, Thailand, and Turkey. In particular, it investigates whether monetary policy in these countries can be more accurately described by (i) an augmented rule including the exchange rate, as well as (ii) a nonlinear threshold specification (estimated using GMM), instead of a baseline linear rule. The results suggest that the reaction of monetary authorities to deviations from target of either the inflation or the output gap differs in terms of the size and/or statistical significance of the coefficients in the high and low inflation regimes in all countries. In particular, the exchange rate has an impact in the former but not in the latter regime. Overall, an augmented nonlinear Taylor rule appears to capture more accurately the behaviour of monetary authorities in these countries.

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Publication status

  • Published

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  • Published version

Journal

Economic Modelling

ISSN

0264-9993

Publisher

Elsevier

Volume

72

Department affiliated with

  • Accounting and Finance Publications

Full text available

  • Yes

Peer reviewed?

  • Yes

Legacy Posted Date

2018-02-14

First Open Access (FOA) Date

2018-05-21

First Compliant Deposit (FCD) Date

2018-02-14

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