Premium
Monetary Policy Reaction Functions in Small Open Economies: a Quantile Regression Approach
Author(s) -
Chevapatrakul Thanaset,
PaezFarrell Juan
Publication year - 2014
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12014
Subject(s) - economics , monetary policy , inflation (cosmology) , interest rate , small open economy , quantile regression , monetary economics , output gap , quantile , econometrics , inflation targeting , real interest rate , macroeconomics , physics , theoretical physics
We use quantile regressions to model monetary policy reaction functions in three small open economies: A ustralia, C anada and N ew Z ealand. Focusing on T aylor‐type rules, we find evidence of asymmetric interest rate responses for all the countries considered, with monetary policy reacting more strongly to inflation when interest rates are high than when they are low. This is consistent with previous research suggesting that central bankers place more weight on positive deviations of inflation from its target than negative ones. In contrast, the interest rate response to the output gap is largely symmetric and small.