The central bank’s monetary policy targets are usually assumed to be constant overtime for simplicity when estimating a Taylor rule, but recent studies have shed some light on the time variation in policy targets, especially in the inflation target. The potential bias due to misspecification of the time variation can be quite considerable, especially in regime-swtiching models. In this paper, w...

This paper applies a state-space approach to estimate the implicit inflation target of the South African Reserve Bank (SARB) since the adoption of the Inflation Targeting (IT) framework. The paper‟s findings are two. First, although the official inflation target range is 3–6 percent, in practice, the SARB seems to have aimed for the upper segment of the band (41 2 –6 percent) for most of the p...

Discount rate changes always receive considerable attention in financial markets. Two hypotheses compete to explain financial market reactions: the direct ‘borrowing cost effect’ and the announcement effect. This paper examines the issue for the Bundesbank’s discount rate changes after 1979. Summing up we find that market reactions cannot be attributed to a direct borrowing cost effect but excl...

By introducing the concepts of implicit coalitions and con‡ict of interests in a multiple-player context, this paper generalizes some theorems on policy invariance and equilibrium existence and uniqueness for LQ policy games. JEL: C72, E52, E61

Article history: Received 11 October 2012 Received in revised form 3 November 2014 Accepted 3 November 2014 Available online 11 November 2014 In this paper, we investigate the dynamic response of stock market volatility to changes in monetary policy. Using a vector autoregressive model, our findings reveal a significant response of stock returns and volatility to monetary policy shocks. While t...

This paper examines the effects of inflation and currency substitution volatility on the average rates of inflation and currency substitution for twelve emerging market economies. Using a bivariate GARCH-in-Mean model, which accommodates for asymmetric and spillover effects of inflation and currency substitution innovations on their volatilities, we find that for the majority of the countries i...

We estimate a behavioral New Keynesian (NK) model in which households and firms plan over finite horizon. The finite-horizon planning (FHP) outperforms rational expectations versions of the NK as well other models. In FHP model, are forward-looking thinking about events their horizon but backward-looking regarding beyond that point. This gives rise to substantial aggregate persistence without r...

This paper assesses the presence and importance of neo-Fisher effect in postwar data. It formulates estimates an empirical a New Keynesian model driven by stationary nonstationary monetary real shocks. In accordance with conventional wisdom, temporary increases nominal interest rate are estimated to cause decreases inflation output. The main finding is that permanent shocks increase long run ra...

This paper develops recursive methods to study optimal and time consistent policy in dynamic models. We analyze a version of Calvo's 1978 monetary model and show that its time consistent outcomes can be completely characterized as the largest fixed point of either of two operators. Recursive application of these operators provides a computing algorithm which always converges to the set of time ...

One of the more puzzling results in the expectations hypothesis (EH) testing literature is the Campbell-Shiller paradox. In an influential paper, Campbell and Shiller (1991) found that “the slope of the term structure almost always gives a forecast in the wrong direction for the short-term change in the yield on the longer bond, but gives a forecast in the right direction for long-term changes ...