Is the monetary policy rule responsive to exchange rate changes? The case of Indonesia,Malaysia, the Philippines,and Thailand |
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Authors: | Yu Hsing |
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Institution: | (1) Department of Business Administration SLU 10813, College of Business, Southeastern Louisiana University, Hammond, LA 740402, USA |
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Abstract: | Extending Obstfeld and Rogoff (J Econ Perspect 9:73–96, 1995), Ball (Monetary policy rules, University of Chicago Press, pp. 127–144, 1999), Svensson (J Int Econ 50: 155–183, 2000), Taylor (Am Econ Rev 91: 263–267, 2001), Gali and Gertler (J Econ Perspect 21:25–46, 2007), and others, this paper finds that central banks in the Philippines and Thailand respond negatively to the current real
exchange rate and positively to the lagged real exchange rate whereas central banks in Indonesia and Malaysia do not react
to the current or lagged real exchange rate. For the Philippines and Thailand, the null hypothesis that the sum of the coefficients
of the current and lagged real exchange rates is zero cannot be rejected at the 5% level. Central banks in these four countries
respond positively to the inflation rate and the output gap, suggesting that the concept of a simple or an extended Taylor
rule would apply to these countries. Monetary policy reaction functions for Indonesia and Thailand are steeper than those
for Malaysia and the Philippines and would be more responsive to a change in the inflation rate.
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Keywords: | Monetary policy rule Inflation rate Output gap Exchange rate Partial adjustment model |
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