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Monetary Regime Switches and Central Bank Preferences
Author(s) -
DEBORTOLI DAVIDE,
NUNES RICARDO
Publication year - 2014
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12160
Subject(s) - interest rate , monetary policy , simple (philosophy) , economics , constant (computer programming) , forward guidance , central bank , monetary economics , econometrics , macroeconomics , inflation targeting , credit channel , computer science , philosophy , epistemology , programming language
Monetary policy objectives and targets are not necessarily constant over time. The regime‐switching literature has typically analyzed and interpreted changes in policymakers' behavior through simple interest rate rules. This paper analyzes policy regime switches by explicitly modeling policymakers' behavior and objectives. We show that changes in the parameters of simple rules do not necessarily correspond to changes in policymakers' preferences. In fact, capturing and interpreting regime changes in preferences through interest rate rules can lead to misleading results.