Essays in monetary policy conduction and its effectiveness: monetary policy rules, probability forecasting, central bank accountability, and the sacrifice ratio

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Title: Essays in monetary policy conduction and its effectiveness: monetary policy rules, probability forecasting, central bank accountability, and the sacrifice ratio
Author: Gabriel, Casillas Olvera,
Abstract: Monetary policy has been given either too many positive attributes or , in contrast , only economy -disturbing features . Central banks must take into account a wide variety of factors to achieve a proper characterization of modern economies for the optimal implementation of monetary policy . Such is the case of central bank accountability and monetary policy effectiveness . The objective of this dissertation is to examine these two concerns relevant to the current macroeconomic debate . The analyses are carried out using an innovative set of tools to extract presumably important information from historical data of selected macroeconomic indicators . This dissertation consists of three essays . The first essay explores the causality between the elements of the "celebrated" Taylor rule , using a Structural Vector Autoregression approach on US data . Directed acyclical graph techniques and Bayesian search models are used to identify the contemporaneous causal structure in the construction of impulse -response functions . Further analysis is performed by evaluating the implications of performing standard innovation -accounting procedures , derived from a Structural Vector Autoregression on interest rates , inflation , and unemployment . This is examined whenever a causal structure is imposed vs . when it is observed . We find that the interest rate causes inflation and unemployment . This suggests that the Fed has not followed a Taylor rule in any of the two periods under study . This result differs significantly to the case when the causal structure is imposed . The second essay presents an incentive -compatible approach based on proper scoring rules to evaluate density forecasts in order to reduce the central banks' accountability problem . Our results indicate that the surveyed forecasters have done a "better" job than the Monetary Policy Committee (MPC ) . The third essay analyzes the causal structure of the factors that are presumed to influence the effectiveness of monetary policy , represented by the sacrifice ratio . Directed acyclical graph methods are used to identify the causal flow between such determinants and the sacrifice ratio . We find evidence that , while wage rigidities and central bank independence are the two major determinants of the sacrifice ratio , the degree of openness has no direct effect on the sacrifice ratio .
URI: http : / /hdl .handle .net /1969 .1 /1182
Date: 2004-11-15

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Essays in monetary policy conduction and its effectiveness: monetary policy rules, probability forecasting, central bank accountability, and the sacrifice ratio. Available electronically from http : / /hdl .handle .net /1969 .1 /1182 .

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