Financial market conditions, real time, nonlinearity and European Central Bank monetary policy : in-sample and out-of-sample assessment

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dc.contributor.author Milas, Costas
dc.contributor.upauthor Naraidoo, Ruthira
dc.date.accessioned 2010-04-06T07:03:32Z
dc.date.available 2010-04-06T07:03:32Z
dc.date.issued 2009-10
dc.description.abstract We explore how the ECB sets interest rates in the context of policy reaction functions. Using both real-time and revised information, we consider linear and nonlinear policy functions in inflation, output and a measure of financial conditions. We find that amongst Taylor rule models, linear and nonlinear models are empirically indistinguishable within sample and that model specifications with real-time data provide the best description of in-sample ECB interest rate setting behavior. The 2007-2009 financial crisis witnesses a shift from inflation targeting to output stabilisation and a shift, from an asymmetric policy response to financial conditions at high inflation rates, to a more symmetric response irrespectively of the state of inflation. Finally, without imposing an a priori choice of parametric functional form, semiparametric models forecast out-of-sample better than linear and nonlinear Taylor rule models. en
dc.identifier.citation Milas, C & Naraidoo, R 2009, 'Financial market conditions, real time, nonlinearity and European Central Bank monetary policy: in-sample and out-of-sample assessment', University of Pretoria, Department of Economics, Working paper series, no. 2009-23. [http://web.up.ac.za/default.asp?ipkCategoryID=736&sub=1&parentid=677&subid=729&ipklookid=3] en
dc.identifier.uri http://hdl.handle.net/2263/13776
dc.language.iso en en_US
dc.publisher University of Pretoria, Department of Economics en_US
dc.relation.ispartofseries Working Paper (University of Pretoria, Department of Economics) en_US
dc.relation.ispartofseries 2009-23 en_US
dc.rights University of Pretoria, Department of Economics en_US
dc.subject Nonlinearity (Mathematics) en
dc.subject Real time data en
dc.subject Financial conditions index en
dc.subject European Central Bank (ECB) en
dc.subject.lcsh Monetary policy -- Mathematical models en
dc.subject.lcsh Nonlinear theories en
dc.subject.lcsh Interest rates en
dc.subject.lcsh Taylor's rule en
dc.title Financial market conditions, real time, nonlinearity and European Central Bank monetary policy : in-sample and out-of-sample assessment en
dc.type Working Paper en


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