Monetary Policy Rules in Practice: Some International Evidence

CEPR Discussion Paper Series Number 1750

Posted: 27 Feb 1998

See all articles by Richard Clarida

Richard Clarida

Columbia University - Graduate School of Arts and Sciences - Department of Eco; National Bureau of Economic Research (NBER)

Jordi Galí

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Mark Gertler

New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 1997

Abstract

This paper reports estimates of monetary policy reaction functions for two sets of countries: the G3 (Germany, Japan and the United States) and the E3 (France, Italy and the United Kingdom). It finds that since 1979 each of the G3 central banks has pursued an implicit form of inflation targeting, which may account for the broad success of monetary policy in those countries over this time period. The evidence also suggests that these central banks have been forward looking: they respond to anticipated inflation as opposed to lagged inflation. As for the E3, even prior to the emergence of the d ERMs policy rule as a benchmark, we find that at the time of the EMS collapse, interest rates in each of the E3 countries were much higher than domestic macroeconomic conditions warranted. Taken all together, the results lend support to the view that some form of inflation targeting may be superior to fixing exchange rates, as a means of gaining a nominal anchor for monetary policy.

JEL Classification: E58, F41

Suggested Citation

Clarida, Richard H. and Gali, Jordi and Gertler, Mark, Monetary Policy Rules in Practice: Some International Evidence (November 1997). CEPR Discussion Paper Series Number 1750. Available at SSRN: https://ssrn.com/abstract=61790

Richard H. Clarida

Columbia University - Graduate School of Arts and Sciences - Department of Eco ( email )

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Jordi Gali (Contact Author)

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Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Mark Gertler

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