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- Title
Together or Apart? Monetary Policy Divergences in the G4.
- Authors
Howorth, Samuel; Lombardi, Domenico; Siklos, Pierre L.
- Abstract
We evaluate monetary policy divergence in the G4. A Taylor rule is extended that admits a global element and also allows for unconventional monetary policy to be reflected in a shadow policy rate. We propose a policy divergence index based on observed, fitted, or shadow policy rates but which interprets the stance of monetary as dictated by the real interest rate. In spite of flexible exchange rates, each economy's monetary policy is significantly impacted by a global element, pre and post-crisis. Our divergence index also suggests more divergence in the stance of monetary policy than if nominal policy rates alone are compared, whether observed or shadow rates are used. Nevertheless, we conclude that US monetary policy's impact among other systemically important economies has increased since the global financial crisis although divergences persist.
- Subjects
MONETARY policy; TAYLOR'S rule; DIVERGENCE theorem; FINANCIAL crises; INTEREST rates
- Publication
Open Economies Review, 2019, Vol 30, Issue 2, p191
- ISSN
0923-7992
- Publication type
Article
- DOI
10.1007/s11079-019-09524-y