Central Bank Reaction Functions in Inflation and Non-Inflation Targeting Countries: Are They Informative About the Conduct of Monetary Policy?

34 Pages Posted: 6 Nov 1998

See all articles by Stephen Murchison

Stephen Murchison

Wilfrid Laurier University - School of Business & Economics

Pierre L. Siklos

Wilfrid Laurier University - School of Business & Economics; Balsillie school of international affairs

Date Written: July 1998

Abstract

This paper seeks, through the estimation of central bank reaction functions for 19 OECD countries in a panel setting, to examine the relationship between certain key target variables and an instrument of monetary policy, namely short-term interest rates. A rolling, reduced form, vector autoregression of interest rates, unemployment and inflation rates is employed to mimic a central bank's information set. The results of this study suggest that central banks react in a predictable manner to unemployment and inflation innovations. However, when the group of inflation targeting countries are separately considered, reaction functions are much more informative about both central bank and government motives.

JEL Classification: E58, C31, C32, C53

Suggested Citation

Murchison, Stephen and Siklos, Pierre L., Central Bank Reaction Functions in Inflation and Non-Inflation Targeting Countries: Are They Informative About the Conduct of Monetary Policy? (July 1998). Available at SSRN: https://ssrn.com/abstract=137334 or http://dx.doi.org/10.2139/ssrn.137334

Stephen Murchison

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
Canada

Pierre L. Siklos (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

Department of Economics
75 University Avenue W.
Waterloo, Ontario N2L 3C5
Canada
519-884-0710 Ext.. 3491 (Phone)

HOME PAGE: http://pierrelsiklos.com

Balsillie school of international affairs ( email )

67 Erb Street West
Waterloo, ON N2L 6C2
Canada

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