Monetary Policy Rules, Asset Prices, and Exchange Rates
By J. Chadha, Lucio Sarno, Giorgio Valente. International Monetary Fund Staff Papers, 2003
150 citations recorded by the source corpus.
We examine empirically whether asset prices and exchange rates may be admitted into a standard interest rate rule, using data for the United States, the United Kingdom, and Japan since 1979. Asset prices and exchange rates can be employed as information variables for a standard “Taylor-type” rule or as arguments in an augmented interest rate rule. Our empirical evidence, based on measures of the output gap proxied by marginal cost calculations, suggests that monetary policy-makers may use asset prices and exchange rates not only as part of their information set for setting interest rates, but also to set interest rates to offset deviations of asset prices or exchange rates from their equilibrium levels. These results are open to several alternative interpretations.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/2d3c8784da221e3da8491b416fc42d033defa14b
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In Economics and Econometrics
Citations in the corpus
- Identifying the interdependence between US monetary policy and the stock market (2005, unknown): “Chadha et al (2003) estimate augmented Taylor rules using GMM and find that both stock prices and real exchange rate deviations from their equilibrium values in addition 8 A money supply shock that raises the interest rate by one percentage point, leads to a fall in stock prices by around 6 percent.”
- Commodity Prices, Interest Rates and the Dollar (2009, background): “It is still a contentious issue in the literature whether monetary policy authorities under (flexible) inflation targeting regimes respond to asset 11 prices; see Clarida et al. (1998), Chadha et al. (2004) and the references therein.”