Trilemma, dilemma or 2.5-lemma in the transmission of monetary policy : evidence from a Markov-switching panel data model
We examine the spill-over effects of interest rate transmission of United States monetary policy to peripheral countries with various exchange rate regimes and capital control management policies. To do so, we propose a two-state continuous-time hidden Markov-switching panel data model using an e...
| Main Authors: | , |
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| Other Authors: | |
| Format: | Journal Article |
| Language: | English |
| Published: |
2021
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| Subjects: | |
| Online Access: | https://hdl.handle.net/10356/148295 |
| _version_ | 1811686895672885248 |
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| author | Alba, Joseph Dennis Wang, Peiming |
| author2 | School of Social Sciences |
| author_facet | School of Social Sciences Alba, Joseph Dennis Wang, Peiming |
| author_sort | Alba, Joseph Dennis |
| collection | NTU |
| description | We examine the spill-over effects of interest rate transmission of United States monetary policy
to peripheral countries with various exchange rate regimes and capital control management
policies. To do so, we propose a two-state continuous-time hidden Markov-switching panel
data model using an empirical framework based on the Taylor rule. We find peripheral
countries with flexible exchange rates and free capital mobility respond differently to changes
in short-term US interest rates under the two regimes based on interest rate volatility. Under
the high volatility regime, peripheral countries respond to decreases but not to increases in
short-term US interest rate. Under the low volatility regime, peripheral countries respond more
strongly to an increase than a decrease in short-term US interest rate. In addition, peripheral
countries under high volatility regimes respond more strongly than countries under low
volatility regimes to a decrease in short-term US interest rate. In both volatility regimes, capital
controls insulate the peripheral countries from changes in the short-term US interest rate
regardless their exchange rate regimes. |
| first_indexed | 2024-10-01T05:07:41Z |
| format | Journal Article |
| id | ntu-10356/148295 |
| institution | Nanyang Technological University |
| language | English |
| last_indexed | 2024-10-01T05:07:41Z |
| publishDate | 2021 |
| record_format | dspace |
| spelling | ntu-10356/1482952023-03-05T15:32:39Z Trilemma, dilemma or 2.5-lemma in the transmission of monetary policy : evidence from a Markov-switching panel data model Alba, Joseph Dennis Wang, Peiming School of Social Sciences Social sciences::Economic development Panel Markov Switching Exchange Rate Regimes Capital Control Trilemma We examine the spill-over effects of interest rate transmission of United States monetary policy to peripheral countries with various exchange rate regimes and capital control management policies. To do so, we propose a two-state continuous-time hidden Markov-switching panel data model using an empirical framework based on the Taylor rule. We find peripheral countries with flexible exchange rates and free capital mobility respond differently to changes in short-term US interest rates under the two regimes based on interest rate volatility. Under the high volatility regime, peripheral countries respond to decreases but not to increases in short-term US interest rate. Under the low volatility regime, peripheral countries respond more strongly to an increase than a decrease in short-term US interest rate. In addition, peripheral countries under high volatility regimes respond more strongly than countries under low volatility regimes to a decrease in short-term US interest rate. In both volatility regimes, capital controls insulate the peripheral countries from changes in the short-term US interest rate regardless their exchange rate regimes. Ministry of Education (MOE) Accepted version This work was supported by the Tier 1 Ministry of Education, Singapore [grant reference RG169/18]. 2021-08-13T07:04:28Z 2021-08-13T07:04:28Z 2021 Journal Article Alba, J. D. & Wang, P. (2021). Trilemma, dilemma or 2.5-lemma in the transmission of monetary policy : evidence from a Markov-switching panel data model. Applied Economics, 53(42), 4917-4929. https://dx.doi.org/10.1080/00036846.2021.1912281 0003-6846 https://hdl.handle.net/10356/148295 10.1080/00036846.2021.1912281 42 53 4917 4929 en MOE Tier1 RG169/18 Applied Economics https://doi.org/10.21979/N9/HN5JKE This is an Accepted Manuscript of an article published by Taylor & Francis in Applied Economics on 15 Apr 2021, available online: http://www.tandfonline.com/10.1080/00036846.2021.1912281. application/pdf |
| spellingShingle | Social sciences::Economic development Panel Markov Switching Exchange Rate Regimes Capital Control Trilemma Alba, Joseph Dennis Wang, Peiming Trilemma, dilemma or 2.5-lemma in the transmission of monetary policy : evidence from a Markov-switching panel data model |
| title | Trilemma, dilemma or 2.5-lemma in the transmission of monetary policy : evidence from a Markov-switching panel data model |
| title_full | Trilemma, dilemma or 2.5-lemma in the transmission of monetary policy : evidence from a Markov-switching panel data model |
| title_fullStr | Trilemma, dilemma or 2.5-lemma in the transmission of monetary policy : evidence from a Markov-switching panel data model |
| title_full_unstemmed | Trilemma, dilemma or 2.5-lemma in the transmission of monetary policy : evidence from a Markov-switching panel data model |
| title_short | Trilemma, dilemma or 2.5-lemma in the transmission of monetary policy : evidence from a Markov-switching panel data model |
| title_sort | trilemma dilemma or 2 5 lemma in the transmission of monetary policy evidence from a markov switching panel data model |
| topic | Social sciences::Economic development Panel Markov Switching Exchange Rate Regimes Capital Control Trilemma |
| url | https://hdl.handle.net/10356/148295 |
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