Credibility of European Monetary System Interest Rate Policies: A Markov Regime-Switching Approach

23 Pages Posted: 4 May 2004

See all articles by Philip Arestis

Philip Arestis

University of Cambridge - Department of Land Economy; Universidad del País Vasco (UPV/EHU)

Konstantinos Mouratidis

National Institute of Economic and Social Research (NIESR)

Abstract

The Markov regime-switching modelling framework, with time-varying transition probabilities, is utilized to study the credibility of monetary policy in five member countries of the European Monetary System during the period 1979-98 (Austria, Belgium, France, Italy and the Netherlands). The output-gap variability and the inflation variability variables are incorporated in the determination of the monetary policy preferences of the five countries. Empirical evidence is provided to show that although all the countries in our sample followed a credible monetary policy regarding price stability, they had different preferences regarding the trade-off between the stabilization of output-gap variability and inflation variability.

Suggested Citation

Arestis, Philip and Mouratidis, Konstantinos, Credibility of European Monetary System Interest Rate Policies: A Markov Regime-Switching Approach. Manchester School, Vol. 72, No. 1, pp. 1-23, January 2004. Available at SSRN: https://ssrn.com/abstract=513756

Philip Arestis (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Universidad del País Vasco (UPV/EHU)

Barrio Sarriena s/n
Leioa, Bizkaia 48940
Spain

Konstantinos Mouratidis

National Institute of Economic and Social Research (NIESR) ( email )

2 Dean Trench Street
Smith Square
London SW1P 3HE
United Kingdom

HOME PAGE: http://www.niesr.ac.uk/STAFFBIO/KMourati.htm

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