Monetary policy trilemma, inflation targeting and global financial crisis

Download

index.pdf

Date

2020-04-01

Author

Gulsen, Eda
Özmen, Erdal

Metadata

Show full item record

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Item Usage Stats

408
views

0
downloads

We empirically investigate the validity of the monetary policy trilemma postulation for emerging market (EME) and advanced (AE) economies under different exchange rate and monetary policy regimes before and after the recent global financial crisis (GFC). Consistent with the dilemma proposition, domestic interest rates are determined by global financial conditions and the FED rate even under floating exchange rate regimes (ERR) in the long-run. The impact of the FED rates is higher in EME than AE and EME are much more sensitive to global financial cycle under managed than floating ERR. The spillover from the FED rate substantially increases after the GFC in EME with floating ERR and AE. The results from the monetary policy reaction functions based on equilibrium correction mechanism specifications suggest that domestic interest rates respond to inflation and output gaps especially under inflation targeting (IT) in the short-run. The response to inflation gap tends to be smaller in IT AE after the GFC.

Subject Keywords

Economics and Econometrics, Accounting, Finance

URI

https://hdl.handle.net/11511/39344

Journal

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS

DOI

https://doi.org/10.1002/ijfe.1752

Collections

Department of Economics, Article

Suggestions

OpenMETU
Core

Foreign money shocks and the welfare performance of alternative monetary policy regimes Senay, Ozge; Sutherland, Alan (Wiley, 2007-01-01) The welfare properties of monetary policy regimes for a country subject to foreign money shocks are examined in a two-country sticky-price model. Money targeting is found to be welfare superior to a fixed exchange rate when the expenditure switching effect of exchange rate changes is relatively weak, but a fixed rate is superior when the expenditure switching effect is strong. However, price targeting is superior to both these regimes for all values of the expenditure switching effect. A welfare-maximising ...
Interest rates and monetary policy Gazioglu, S.; McCausland, W. D. (Informa UK Limited, 2009-01-01) This article conducts a thorough intertemporal analysis of nominal interest rate based monetary policy. Its main contribution is to show how such a policy can have different effects depending on the assumptions made about the saving and borrowing behaviour of firms. We consider two cases: (i) consumers are savers and firms are borrowers and (ii) both consumers and firms are borrowers (the nation as a whole is borrowing from abroad). In one case we confirm conventional wisdom, but in the other case we find t...
Macroeconomic and institutional determinants of current account deficits Ozmen, E (Informa UK Limited, 2005-07-15) This study empirically investigates the effects of institutional and macroeconomic policy variables on current account deficits (CAD). Based on cross-section data for a broad number of countries, the results suggest that better governance increases whilst 'original sin' decreases the ability of an economy to sustain CAD. Exchange rate flexibility and openness appear to put a discipline on CAD. Consistent with the equity home bias and Feldstein-Horioka puzzle, CAD decrease with country size. The net impacts ...
Economic uncertainty and credit crunch - Evidence from an emerging market Rhoades, SD; Güner, Zehra Nuray (Informa UK Limited, 2003-07-01) Using both univariate and multivariate analyses, this paper attempts to determine whether a credit crunch occurred in the Turkish economy during the 1990s. It also addresses the question of whether this credit crunch was a supply-side- or a demand-side-originated phenomenon. Economic uncertainty is proxied by unanticipated inflation. The analyses are carried out by controlling for political uncertainty as well. The results indicate that economic uncertainty has a significantly negative impact on the supply ...
Deviations from PPP and UIP in a financially open economy: The Turkish evidence Özmen, Erdal (Informa UK Limited, 2004-07-01) This paper investigates the interrelations between purchasing power parity (PPP) and uncovered interest parity (UIP) in Turkey using Johansen cointegration analysis for a system containing Turkish and US inflation rates, interest rates, and exchange rate. The results of a structural model obtained by data-acceptable over-identifying restrictions over the cointegration space suggest the existence of two cointegration vectors representing UIP and PPP with proportionality and symmetry conditions, respectively....

Citation Formats

E. Gulsen and E. Özmen, “Monetary policy trilemma, inflation targeting and global financial crisis,” INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, pp. 286–296, 2020, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/39344.