2014/01/28 by Fredj Jawadi, Sushanta Kumar Mallick, Sushanta Mallick +2 · 1 citation
Economics, Econometrics and Finance · #Monetary Policy and Economic Impact #Market Dynamics and Volatility #Economic Theory and Policy
paper · doi:10.1080/00036846.2013.851774
This article estimates monetary policy rules for two key emerging market economies: Brazil and China. It analyses whether the monetary authority reacts to changes in economic activity, financial markets, monetary conditions, the foreign exchange market and the commodity price. We assess the importance of nonlinearity using a smooth transition regression (STR) model. Using quarterly data over the time period 1990:1 to 2008:4, we find that considerations about the output gap and the real effective exchange rate (in the case of Brazil), and the inflation rate (for China) explain the nonlinear adjustment of the central bank rate. Moreover, the results suggest that central banks pursue a target range for the threshold variable rather than a specific point target. In the case of China, the McCallum rule shows that the GDP growth, the interest rate and the commodity price drive the response of the growth rate of the relevant monetary aggregate.