Munich Personal RePEc Archive

Asymmetric monetary policy rules for open economies: Evidence from four countries

Caglayan, Mustafa and Jehan, Zainab and Mouratidis, Kostas (2012): Asymmetric monetary policy rules for open economies: Evidence from four countries.

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Abstract

This study presents an analytical framework to examine the policy reaction function of a central bank in an open economy context while allowing for asymmetric preferences. The paper then empirically examines the policy rule obtained from this framework using quarterly data for the US, Canada, Japan, and the UK. The results, based on GMM approach, provide evidence that domestic policy is affected by changes in the foreign interest rate and exchange rate. We also provide evidence of the presence of asymmetries in response to the inflation rate and output gap for all the sample countries.

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