Monetary information and monetary policy decisions: Evidence from the euroarea and the UK

Thanaset Chevapatrakul, Tae Hwan Kim, Paul Mizen

Research output: Contribution to journalArticlepeer-review

Abstract

This paper uses a modified New Keynesian framework to consider the use of monetary information in making monetary policy decisions. We add monetary indicators derived from theoretical models to conventional economic variables in an instrument rule and estimate the equations using euroarea and UK data recognizing that interest rates are set discretely. There is an improvement in the ability to predict changes in interest rates when we introduce monetary indicators which is robust to alternative model specifications. This result adds to a growing literature on the role of monetary indicators showing that this information helps predict interest rate decisions as well as inflation.

Original languageEnglish
Pages (from-to)326-341
Number of pages16
JournalJournal of Macroeconomics
Volume34
Issue number2
DOIs
Publication statusPublished - 2012 Jun

Bibliographical note

Funding Information:
We thank Mike Artis, Katrin Assenmacher-Wesche, Anindya Banerjee, Guenter Beck, Roel Beetsma, Andreas Beyer, Keith Blackburn, Mick Devereux, Stefan Gerlach, Petra Gerlach-Kristen, Charles Goodhart, Juergen von Hagen, Clemens Kool, Benoit Mojon, Dieter Nautz, Edward Nelson, Manfred Neumann, Denise Osborn, Andreas Schabert, Alan Timmerman, Axel Weber, Volker Wieland and James Yetman for helpful comments. Tae-Hwan Kim is grateful for financial support by National Research Foundation of Korea – Grant funded by the Korean Government (NRF-2009-327-B00088).

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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