Credibility of Monetary Policy in Four Accession Countries: A Markov Regime-Switching Approach

The aim of this study is to estimate the credibility of monetary policy in four accession countries (the Czech Republic, Hungary, Poland, and the Slovak Republic), based on the Markov regime-switching (MRS) framework. We utilize the theoretical proposition that in the conduct of monetary policy, there is uncertainty in terms of the type of central bank. We measure this uncertainty as a deviation of monetary policy from a target level. We utilize for the target level the differential between the interest rates of the four individual accession countries and a "synthetic" interest rate of 11 EMU member countries.

[1]  Credibility of Policies Versus Credibility of Policymakers , 1994 .

[2]  Stilianos Fountas,et al.  Policy credibility in the ERM: evidence from six countries using an ARCH approach , 1997 .

[3]  Kenneth A. Froot,et al.  The EMS, the EMU, and the Transition to a Common Currency , 1991, NBER Macroeconomics Annual.

[4]  R. Barro,et al.  A Positive Theory of Monetary Policy in a Natural Rate Model , 1981, Journal of Political Economy.

[5]  D. Backus,et al.  Inflation and Reputation , 1985 .

[6]  Stephen Gray.  Modeling the Conditional Distribution of Interest Rates as a Regime-Switching Process , 1996 .

[7]  Nicholas Sarantis,et al.  Credibility, Macroeconomic Fundamentals and Markov Regime Switches in the EMS , 2004 .

[8]  Andrew John,et al.  Coordinating Coordination Failures in Keynesian Models , 1988 .

[9]  Christopher G. Lamoureux,et al.  Persistence in Variance, Structural Change, and the GARCH Model , 1990 .

[10]  Kenneth Rogoff,et al.  The Optimal Degree of Commitment to an Intermediate Monetary Target''Quarterly Journal of Economics , 1985 .

[11]  René Garcia,et al.  Série Scientifique Scientific Series Nº 95s-7 Asymptotic Null Distribution of the Likelihood Ratio Test in Markov Switching Models , 2022 .

[12]  Andrew Ang,et al.  Regime Switches in Interest Rates , 1998 .

[13]  L. Ball.  Time-Consistent Policy and Persistent Changes in Inflation , 1990 .

[14]  R. Barro,et al.  Rules, Discretion and Reputation in a Model of Monetary Policy , 1983 .

[15]  Hamid Faruqee.  Dynamic Capital Mobility in Pacific Basin Developing Countries: Estimation and Policy Implications , 1991, SSRN Electronic Journal.

[16]  David I. Laibson,et al.  Economic Implications of Extraordinary Movements in Stock Prices , 1989 .

[17]  P. Arestis,et al.  Credibility of European Monetary System Interest Rate Policies: A Markov Regime-Switching Approach , 2004 .

[18]  Stephen Gray,et al.  Regime-switching and interest rates in the European monetary system , 2000 .

[19]  O. Jeanne.  Are currency crises self-fulfilling?: A test , 1997 .

[20]  C. Walsh.  Is New Zealand's Reserve Bank Act of 1989 an Optimal Central Bank Contract? , 1995 .

[21]  Paul R. Masson,et al.  Currency crises, sunspots and Markov-switching regimes , 2000 .

[22]  Steven N. Durlauf.  Multiple Equilibria and Persistence in Aggregate Fluctuations , 1991 .

[23]  Sarantis Kalyvitis,et al.  Interest rate convergence, capital controls, risk premia and foreign exchange market efficiency in the EMS , 1996 .

[24]  Bruce E. Hansen,et al.  Erratum: The likelihood ratio test under nonstandard conditions: Testing the Markov switching model of GNP , 1996 .