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Assessing monetary rules performance across EMU countries
Author(s) -
Altavilla Carlo
Publication year - 2003
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.199
Subject(s) - economics , monetary policy , volatility (finance) , output gap , inflation (cosmology) , interest rate , inflation targeting , dimension (graph theory) , econometrics , smoothing , macroeconomics , computer science , mathematics , theoretical physics , computer vision , pure mathematics , physics
The topic covered in this paper is the performance of different monetary policy rules used as guidelines in practical policy making. To this end, different rules are evaluated using alternative econometrics techniques. A comparative analysis is made of the ability of the rules to correspond to the historical central bank behaviour and of the volatility of output, inflation and interest rate changes that they imply. The study is conducted of the EMU countries. The results suggest that simple rules perform quite well and that the advantages obtained from adopting an optimal control‐based rule are not so great. Moreover, the addition of a forward‐looking dimension and of an interest rate smoothing term in the reaction function seems to improve the performance of the rules. Copyright © 2003 John Wiley & Sons, Ltd.