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Reaction Functions (reaction + function)
Kinds of Reaction Functions Selected AbstractsMonetary Frameworks and Institutional Constraints: UK Monetary Policy Reaction Functions, 1985,2003OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 4 2005Christopher Adam Abstract Monetary policy reaction functions are estimated for the UK over three periods , 1985,90, 1992,97 and 1997,2003 , in order to disentangle two effects: the switch from an emphasis on exchange rate stabilization to inflation targeting, and the introduction of instrument-independence in 1997. The external factors considered include US as well as German interest rates, and this leads to the identification of ,domestic' and ,international' models of the reaction function. The results suggest that it is the changes in the institutional arrangements rather than those in the targeting regime which have been decisive in the development of policy in this period. [source] Monetary Policy Reaction Functions in Australia,THE ECONOMIC RECORD, Issue 253 2005GORDON De BROUWER Interest-rate functions are estimated to assess the stability of Australian monetary policy in the post-float period. The results indicate that the Reserve Bank of Australia (RBA) is forward-looking, focusing on outcomes 1 year ahead. The weight on inflation in the RBA reaction function has increased, and that on output has decreased, since inflation targeting. This is robust to various definitions of the output gap. The RBA also appears to take modest account of sustained movements in the effective exchange rate. Point estimates of the implied neutral rate of interest are from 5 to 5½ per cent. [source] COURNOT OLIGOPOLY UNDER STRATEGIC UNCERTAINTY WITH OPTIMISTIC AND PESSIMISTIC FIRMSMETROECONOMICA, Issue 3 2005Fulvio Fontini ABSTRACT In this paper the Cournot oligopoly under uncertainty is analyzed by means of the Choquet Expected Utility (CEU) theory. Firms are supposed to be either optimistic (CEU maximizers who hold concave capacities) or pessimistic (convex capacities). Reaction functions, equilibrium quantities, prices and profits are derived and compared for different degrees of uncertainty and uncertainty attitude (optimism or pessimism). It is proved that optimists make higher profits than pessimists whenever uncertainty is sufficiently low. If it is high just optimists participate in the market making losses. An interpretation of the main results in terms of the market's level of maturity is provided. [source] Forecasting the Direction of Policy Rate Changes: The Importance of ECB WordsECONOMIC NOTES, Issue 1-2 2009Carlo Rosa This paper evaluates the predictive power of different information sets for the European Central Bank (ECB) interest-rate-setting behaviour. We employ an ordered probit model, i.e. a limited dependent variable framework, to take into account the discreteness displayed by policy rate changes. The results show that the forecasting ability of standard Taylor-type variables, such as inflation and output gap, is fairly low both in-sample and out-of-sample, and is comparable to the performance of the random walk model. Instead by using broader information sets that include measures of core inflation, exchange rates, monetary aggregates and financial conditions, the accuracy of the forecasts about ECB future actions substantially improves. Moreover, ECB rhetoric considerably contributes to a better understanding of its policy reaction function. Finally, we find that that the ECB has been fairly successful in educating the public to anticipate the overall future direction of its monetary policy, but has been less successful in signalling the exact timing of rate changes. [source] POLITICAL MONETARY CYCLES UNDER ALTERNATIVE INSTITUTIONS: THE INDEPENDENT TREASURY AND THE FEDERAL RESERVEECONOMICS & POLITICS, Issue 3 2005Jac C. Heckelman The theory of opportunistic political business cycles predicts incumbent politicians will alter their economic policies to spur short-run growth to attract additional votes for the upcoming election. There has not been much emphasis on the possibility of historical political business cycles prior to the Keynesian Revolution. No study has yet undertaken a systematic approach to testing for policy cycles during this period. Our study will bridge this gap by considering cycles in monetary policy for the periods of 1879,1914 until the start of Fed operations, and 1914,1932 until abandonment of the gold standard. To properly test for political cycles, it is necessary to develop reaction functions for the Treasury and compare against the reaction function later held by the Fed. This also reveals that creation of an independent monetary authority to be insulated from political pressures changed the manner in which policy was directed, aside from political issues. The evidence is not consistent, however, with monetary cycles closely tied to electoral concerns. [source] Monetary policy rules in practice: evidence from TurkeyINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 1 2004Hakan Berument Abstract This paper estimates a forward-looking monetary policy reaction function of the Central Bank of the Republic of Turkey by considering the period from 1990:01 to 2000:10. When the spread between the interbank rate and depreciation rate of the local currency is taken as a policy tool, the empirical evidence suggests that the Turkish Central Bank responds to its foreign exchange reserves, output and M2 growth not the forward, current or lagged inflation. Copyright © 2003 John Wiley & Sons, Ltd. [source] Assessing monetary rules performance across EMU countriesINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 2 2003Carlo Altavilla Abstract The topic covered in this paper is the performance of different monetary policy rules used as guidelines in practical policy making. To this end, different rules are evaluated using alternative econometrics techniques. A comparative analysis is made of the ability of the rules to correspond to the historical central bank behaviour and of the volatility of output, inflation and interest rate changes that they imply. The study is conducted of the EMU countries. The results suggest that simple rules perform quite well and that the advantages obtained from adopting an optimal control-based rule are not so great. Moreover, the addition of a forward-looking dimension and of an interest rate smoothing term in the reaction function seems to improve the performance of the rules. Copyright © 2003 John Wiley & Sons, Ltd. [source] Application of nonlinear time,scaling for robust controller design of reaction systemsINTERNATIONAL JOURNAL OF ROBUST AND NONLINEAR CONTROL, Issue 1 2002P. Moya Abstract Even though the basic mechanisms of operation of reaction systems are relatively simple the dynamical models obtained from first principles are complex and contain highly uncertain terms. To develop reliable model-based controllers it is therefore necessary to simplify the system dynamics preserving the features which are essential for control. Towards this end, co-ordinate transformations identifying the states which are dependent/independent of the reactions and flows have been reported in the literature. This has allowed, for instance, the design of observers which are insensitive to the (usually unknown) reaction functions. The main contribution of this paper is to show the utility of nonlinear state-dependent time-scaling to simplify the system dynamics, and consequently the controller design. In particular, we show that with time-scaling and an input transformation we can reveal the existence of attractive invariant manifolds, which allows us to reduce the dimension of the system. As an application we study the well-known fourth order baker's yeast fed-batch fermentation process model, whose essential dynamics is captured by a planar system perturbed by an exponentially decaying term. We then exploit this particular structure to design, with reduced control authority, a nonlinear asymptotically stabilizing control law which is robust with respect to the reaction function. Copyright © 2001 John Wiley & Sons, Ltd. [source] Monetary Policy and the Lost Decade: Lessons from JapanJOURNAL OF MONEY, CREDIT AND BANKING, Issue 5 2010DANIEL LEIGH liquidity trap; deflation; monetary policy; Bayesian econometrics I investigate how monetary policy can avoid a deflationary slump when policy rates are near zero by studying interest rate policy during Japan's "Lost Decade." Estimation results suggest that the Bank of Japan's interest rate policy fits a conventional reaction function with an inflation target near 1%. The disapointing economic performance thus seems primarily due to adverse economic shocks rather than extraordinary policy errors. Also, counterfactual policy simulations suggest that simply raising the inflation target would not have substantially improved performance. However, price-level targeting or combining a higher inflation target with an aggressive output response would have achieved superior stabilization results. [source] Monetary Frameworks and Institutional Constraints: UK Monetary Policy Reaction Functions, 1985,2003OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 4 2005Christopher Adam Abstract Monetary policy reaction functions are estimated for the UK over three periods , 1985,90, 1992,97 and 1997,2003 , in order to disentangle two effects: the switch from an emphasis on exchange rate stabilization to inflation targeting, and the introduction of instrument-independence in 1997. The external factors considered include US as well as German interest rates, and this leads to the identification of ,domestic' and ,international' models of the reaction function. The results suggest that it is the changes in the institutional arrangements rather than those in the targeting regime which have been decisive in the development of policy in this period. [source] Monetary Policy Reaction Functions in Australia,THE ECONOMIC RECORD, Issue 253 2005GORDON De BROUWER Interest-rate functions are estimated to assess the stability of Australian monetary policy in the post-float period. The results indicate that the Reserve Bank of Australia (RBA) is forward-looking, focusing on outcomes 1 year ahead. The weight on inflation in the RBA reaction function has increased, and that on output has decreased, since inflation targeting. This is robust to various definitions of the output gap. The RBA also appears to take modest account of sustained movements in the effective exchange rate. Point estimates of the implied neutral rate of interest are from 5 to 5½ per cent. [source] POLITICAL MONETARY CYCLES UNDER ALTERNATIVE INSTITUTIONS: THE INDEPENDENT TREASURY AND THE FEDERAL RESERVEECONOMICS & POLITICS, Issue 3 2005Jac C. Heckelman The theory of opportunistic political business cycles predicts incumbent politicians will alter their economic policies to spur short-run growth to attract additional votes for the upcoming election. There has not been much emphasis on the possibility of historical political business cycles prior to the Keynesian Revolution. No study has yet undertaken a systematic approach to testing for policy cycles during this period. Our study will bridge this gap by considering cycles in monetary policy for the periods of 1879,1914 until the start of Fed operations, and 1914,1932 until abandonment of the gold standard. To properly test for political cycles, it is necessary to develop reaction functions for the Treasury and compare against the reaction function later held by the Fed. This also reveals that creation of an independent monetary authority to be insulated from political pressures changed the manner in which policy was directed, aside from political issues. The evidence is not consistent, however, with monetary cycles closely tied to electoral concerns. [source] Using Taylor Rules to Understand European Central Bank Monetary PolicyGERMAN ECONOMIC REVIEW, Issue 3 2007Stephan Sauer Taylor rule; European Central Bank; real-time data Abstract. Over the last decade, the simple instrument policy rule developed by Taylor has become a popular tool for evaluating the monetary policy of central banks. As an extensive empirical analysis of the European Central Bank's (ECB) past behaviour still seems to be in its infancy, we estimate several instrument policy reaction functions for the ECB to shed some light on actual monetary policy in the euro area under the presidency of Wim Duisenberg and answer questions like whether the ECB has actually followed a stabilizing or a destabilizing rule so far. Looking at contemporaneous Taylor rules, the evidence presented suggests that the ECB is accommodating changes in inflation and hence follows a destabilizing policy. However, this impression seems to be largely due to the lack of a forward-looking perspective in such specifications. Either assuming rational expectations and using a forward-looking specification, or using expectations as derived from surveys result in Taylor rules that do imply a stabilizing role of the ECB. The use of real-time industrial production data does not seem to play such a significant role as in the case of the United States. [source] Interdependencies between Monetary Policy and Foreign Exchange Interventions under Inflation Targeting: The Case of Brazil and the Czech RepublicINTERNATIONAL FINANCE, Issue 2 2010Jean-Yves Gnabo Inflation-targeting central banks often explicitly reserve the right to intervene in foreign exchange markets when the exchange rate ,deviates from fundamentals' and/or ,displays excessive volatility'. In the case of emerging markets, central banks can often ill afford to neglect exchange rate developments when setting monetary policy because of a high pass-through of nominal exchange rate changes to domestic prices. As a result, interventions and monetary policy are interrelated, a hypothesis that has been overlooked in the literature. To bridge this gap, this paper includes monetary policy indicators in the estimation of intervention reaction functions for Brazil and the Czech Republic since the adoption of inflation targeting. Our main finding is that interventions take place independently of the contemporaneous monetary policy setting in Brazil, but not in the Czech Republic, where both policies appear to be coordinated. [source] Application of nonlinear time,scaling for robust controller design of reaction systemsINTERNATIONAL JOURNAL OF ROBUST AND NONLINEAR CONTROL, Issue 1 2002P. Moya Abstract Even though the basic mechanisms of operation of reaction systems are relatively simple the dynamical models obtained from first principles are complex and contain highly uncertain terms. To develop reliable model-based controllers it is therefore necessary to simplify the system dynamics preserving the features which are essential for control. Towards this end, co-ordinate transformations identifying the states which are dependent/independent of the reactions and flows have been reported in the literature. This has allowed, for instance, the design of observers which are insensitive to the (usually unknown) reaction functions. The main contribution of this paper is to show the utility of nonlinear state-dependent time-scaling to simplify the system dynamics, and consequently the controller design. In particular, we show that with time-scaling and an input transformation we can reveal the existence of attractive invariant manifolds, which allows us to reduce the dimension of the system. As an application we study the well-known fourth order baker's yeast fed-batch fermentation process model, whose essential dynamics is captured by a planar system perturbed by an exponentially decaying term. We then exploit this particular structure to design, with reduced control authority, a nonlinear asymptotically stabilizing control law which is robust with respect to the reaction function. Copyright © 2001 John Wiley & Sons, Ltd. [source] Monetary and Fiscal Policy SwitchingJOURNAL OF MONEY, CREDIT AND BANKING, Issue 4 2007HESS CHUNG regime change; policy interactions; Taylor rule; fiscal theory of the price level A growing body of evidence finds that policy reaction functions vary substantially over different periods in the United States. This paper explores how moving to an environment in which monetary and fiscal regimes evolve according to a Markov process can change the impacts of policy shocks. In one regime monetary policy follows the Taylor principle and taxes rise strongly with debt; in another regime the Taylor principle fails to hold and taxes are exogenous. An example shows that a unique bounded non-Ricardian equilibrium exists in this environment. A computational model illustrates that because agents' decision rules embed the probability that policies will change in the future, monetary and tax shocks always produce wealth effects. When it is possible that fiscal policy will be unresponsive to debt at times, active monetary policy (like a Taylor rule) in one regime is not sufficient to insulate the economy against tax shocks in that regime and it can have the unintended consequence of amplifying and propagating the aggregate demand effects of tax shocks. The paper also considers the implications of policy switching for two empirical issues. [source] Monetary Frameworks and Institutional Constraints: UK Monetary Policy Reaction Functions, 1985,2003OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 4 2005Christopher Adam Abstract Monetary policy reaction functions are estimated for the UK over three periods , 1985,90, 1992,97 and 1997,2003 , in order to disentangle two effects: the switch from an emphasis on exchange rate stabilization to inflation targeting, and the introduction of instrument-independence in 1997. The external factors considered include US as well as German interest rates, and this leads to the identification of ,domestic' and ,international' models of the reaction function. The results suggest that it is the changes in the institutional arrangements rather than those in the targeting regime which have been decisive in the development of policy in this period. [source] Inflation Targeting as a Framework for Monetary Policy: A Cross-Country AnalysisTHE AUSTRALIAN ECONOMIC REVIEW, Issue 3 2003William Seyfried This study makes use of a dynamic Taylor-type model to examine the conduct of monetary policy by central banks that profess to engage in inflation targeting. Previous research regarding inflation targeting and Taylor-type rules is reviewed and a dynamic Taylor-type model is developed. Tests for regime shifts upon the adoption of inflation targeting indicate a significant change in policy in each of the nations in the study for which sufficient data were available. Next, the central bank reaction functions were estimated. Results suggest that most of the central banks conducted a policy of inflation targeting by seeking to contain inflationary pressures rather than reacting to current inflation. [source] Do the Central Banks of Australia and New Zealand Behave Asymmetrically?THE ECONOMIC RECORD, Issue 261 2007Evidence from Monetary Policy Reaction Functions We test for evidence of asymmetric behaviour in the monetary policy reaction functions of the central banks of Australia and New Zealand. For the Reserve Bank of New Zealand, we found little evidence of asymmetric behaviour, whereas the Reserve Bank of Australia (RBA) appears to react more aggressively to negative output relative to positive output gaps of the same size. We impose additional structure on our model to help distinguish whether the asymmetric response originates from non-linearity in the inflation equation or from non-linearity in an approximate representation of the RBA's preferences over macroeconomic outcomes. We find that the preferences of the RBA may drive the asymmetry: the RBA appears to dislike negative output gaps more than positive output gaps of the same magnitude. We show this generates only a small increase in the conditional mean of inflation that is statistically indistinguishable from the target rate of inflation. [source] Does Institutional Change Really Matter?THE MANCHESTER SCHOOL, Issue 4 2002Central Bank Reform, Inflation Targets, Interest Rate Policy in the OECD Countries We estimate forward,looking interest rate reaction functions for the G3 and some inflation targeters. Shifts in the conduct of monetary policy are detected for the USA and Japan. In contrast with the existing literature, we show that these countries only shifted to policies consistent with an implicit inflation,targeting regime in the 1990s. Inflation targets and central bank reforms in Sweden, the UK, Canada and New Zealand only led in some cases to changes in policy responses, and changes in policy pre,date the introduction of targets. We challenge the one,model,fits,all approach towards monetary policy that permeates much of the current literature. [source] | ||||||||||