In a 2013 WP, David Papell et al. propose to extend standard Taylor rules for the US by allowing parameters to change over time. They assume that changes in parameters are driven by an unobserved Markov-Chain. They point out the response of the FED to inflation is regime dependent. Results show that the usual decomposition of samples between pre and post-Volcker period is not necessarily the best choice.
Archives mensuelles : mars 2016
Impact of tapering talks on EMEs
In May 2013, Ben Bernanke, Chairman of the FOMC, evoked the possible end the FED asset purchases program. The effects on financial conditions in emerging countries were immediate and quite large. In a NBER WP, Aizenman, Binici and Hutchinson (2014) showed that, in opposition to what could be expected, the effects were larger on emerging countries with stronger macro fundamentals (current accounts, reserves, external debt) than on fragile countries. Indeed they observe larger depreciation, larger drops in the stock market and a sharp increase in spreads. Some explanations are provided, including the fact that robust countries received larger inflows during the quantitative years, because of sound domestic financial markets, leading thus to a stronger adjustment afterwards.