Globalization and Monetary Policy Comovement: Evidence from G-7 Countries

41 Pages Posted: 1 Apr 2014

See all articles by Arpita Chatterjee

Arpita Chatterjee

UNSW Australia Business School, School of Economics

Date Written: February 1, 2014

Abstract

This paper empirically characterizes comovement in monetary policy of G-7 countries during 1980-2009. I estimate a Taylor rule for each country and use residual from the Taylor rules to estimate a dynamic latent factor model with common and Europe specific factors. I quantify importance of the G-7 factor in explaining comovement in residual variation of monetary policy and show that the G-7 factor is particularly important during a period of globalization (1988-2003). I estimate dynamics of importance of the G-7 factor using rolling sub-samples and show that trade-openness increases comovement in monetary policy in Europe.

Keywords: Comovement in monetary policy, Globalization, Dynamic latent factor model, Bayesian estimation

JEL Classification: C11, C38, F42, E52

Suggested Citation

Chatterjee, Arpita, Globalization and Monetary Policy Comovement: Evidence from G-7 Countries (February 1, 2014). UNSW Australian School of Business Research Paper No. 2014-19, Available at SSRN: https://ssrn.com/abstract=2418069 or http://dx.doi.org/10.2139/ssrn.2418069

Arpita Chatterjee (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

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