Identifying a Forward‐looking Monetary Policy in an Open Economy

Bibliographic Data

ID9724434
AuthorsRokon Bhuiyan (California State University, Fullerton, corresponding author)
Year2012
Volume79
Issue315
Pages576-599
Publication date2012-07-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueEconomica (JOURNAL)
Journal identifiersISSN: 0013-0427 • E-ISSN: 1468-0335
PublisherWiley (PUBLISHER • GB)
DOI10.1111/j.1468-0335.2011.00907.x
OpenAlexW2037544593
LanguageEN
Citations received1
References cited33

I identify a forward‐looking monetary policy function in a forecast‐augmented VAR ( FOAVAR ) model by using forecasted macroeconomic variables, in addition to the realized variables used in a standard VAR . I find that forecasted variables play a greater role than realized variables in a central bank's policy decisions. I also find that a contractionary policy shock in the FOAVAR generates impulse responses of macroeconomic variables that are consistent with the predictions of economic theory, while the same shock causes a price puzzle and a delayed‐overshooting response of the exchange rate in the standard model

Central bank · Econometrics · Economics · Exchange rate · Impulse response · Interest rate · Macroeconomics · Monetary economics · Monetary policy · Open economy · Shock (circulatory) · Small open economy · Vector autoregression · Economic Theory and Policy · Italy: Economic History and Contemporary Issues · Mathematics · Monetary Policy and Economic Impact

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