Chadha, J.S. and Sarno, Lucio and Valente, Giorgio (2004) Monetary Policy Rules, Asset Prices and Exchange Rates. IMF Staff Papers, 51 (3). pp. 529-552. ISSN 1020-7635.
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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.
|Subjects:||H Social Sciences > HB Economic Theory|
|Divisions:||Faculties > Social Sciences > School of Economics|
|Depositing User:||Jagjit Chadha|
|Date Deposited:||06 Oct 2008 10:30|
|Last Modified:||14 Jan 2010 14:43|
|Resource URI:||http://kar.kent.ac.uk/id/eprint/11154 (The current URI for this page, for reference purposes)|
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