Realized and Optimal Monetary Policy Rules in an Estimated Markov-Switching DSGE Model of the United Kingdom.

Chen, X.; MacDonald, R.

Abstract

This paper investigates underlying changes in the UK economy over the past 35 years using a small open economy dynamic stochastic general equilibrium model. Using Bayesian analysis, we find UK monetary policy, nominal price rigidity and exogenous shocks, are all subject to regime shifts. A model incorporating these changes is used to estimate the realized monetary policy and derive the optimal monetary policy rule for the United Kingdom. This allows us to assess the effectiveness of the realized policy in terms of stabilizing economic fluctuations, and, in turn, provide an indication of whether there is room for the monetary authorities to further improve their policies.

Citation

Chen, X., & MacDonald, R. (2012). Realized and Optimal Monetary Policy Rules in an Estimated Markov-Switching DSGE Model of the United Kingdom. Journal of Money, Credit and Banking, 44(6), 1091-1116. https://doi.org/10.1111/j.1538-4616.2012.00524.x

• Journal Article Type: Article
• Acceptance Date: Dec 14, 2011
• Online Publication Date: Aug 26, 2012
• Publication Date: 2012-09
• Deposit Date: Jan 26, 2015
• Journal: Journal of Money, Credit and Banking
• Print ISSN: 0022-2879
• Electronic ISSN: 1538-4616
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 44
• Issue: 6
• Pages: 1091-1116
• DOI: https://doi.org/10.1111/j.1538-4616.2012.00524.x
• Public URL: https://durham-repository.worktribe.com/output/1437792