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

dc.contributor.authorMilas, Costas
dc.contributor.upauthorNaraidoo, Ruthira
dc.date.accessioned2010-04-06T07:03:32Z
dc.date.available2010-04-06T07:03:32Z
dc.date.issued2009-10
dc.description.abstractWe 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.citationMilas, 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.urihttp://hdl.handle.net/2263/13776
dc.language.isoenen_US
dc.publisherUniversity of Pretoria, Department of Economicsen_US
dc.relation.ispartofseriesWorking Paper (University of Pretoria, Department of Economics)en_US
dc.relation.ispartofseries2009-23en_US
dc.rightsUniversity of Pretoria, Department of Economicsen_US
dc.subjectNonlinearity (Mathematics)en
dc.subjectReal time dataen
dc.subjectFinancial conditions indexen
dc.subjectEuropean Central Bank (ECB)en
dc.subject.lcshMonetary policy -- Mathematical modelsen
dc.subject.lcshNonlinear theoriesen
dc.subject.lcshInterest ratesen
dc.subject.lcshTaylor's ruleen
dc.titleFinancial market conditions, real time, nonlinearity and European Central Bank monetary policy : in-sample and out-of-sample assessmenten
dc.typeWorking Paperen

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