In this paper we estimated the reaction function of the Central Bank of Romania during the last ten years. Using targeting rules of the type proposed by Clarida, Gali, Gertler (1998a, 1998b) we model the evolution of interest rate in this period. Using Generalized Method of Moments estimation we found out a strong relationship between interest rate, output-gap and inflation rate.
Barro ,R. and Gordon D., (1981): A positive theory of monetary policy in a natural-rate model, Journal of Political Economy, Vol. 91. No. 4, pp. 589-610;
Clarida,R. , Gali J. and Gertler M. (1998a): Monetary Rules in Practice.Some International Evidence ,European Economic Review, Vol.42, pp.1033—1067;
Clarida,R. , Gali J. and Gertler M. (1998b): Monetary Policy Rules and Macroeconomic Stability:Evidence and some Theory”, The Quarterly Journal of Economics, Vol. 115, No. 1, pp. 147-180;
Clarida,R. , Gali J. and Gertler M. (1999): The science of monetary policy.A new Keynesian Pespective , Journal of Economic Literature, Vol.37, pp. 1661–1707;
Hamilton,J.D.(1994): Time Series Analysis, Princeton University Press, pp.409-435;
Khan,A. , King R.G. and Wolman R.G. ( 2002):Optimal Monetary Policy, The Review of Economic Studies, Vol. 70, pp. 825-860;
McCallum,B. and Nelson E. (2004):Targeting versus Instruments for monetary policy rules, Federal Reserve Bank of St. Louis Review, Vol.87, No.5, pp. 597-611;
Mishkin,F (2004): The Economics of Money,Banking and Financial Markets7th Edition, Addison-Wesley Series in Economics, pp.613-638;
Taylor, J.B. (1993): Discretion versus policy rule in practice, Carnegie-Rochester Conference Series on Public Policy, Vol. 39, pp. 195-214;
Taylor, J.B. ( 2007):The Explanatory Power of Monetary Policy Rules, NBER , Working Paper No. 13685;
M.Woodford, (2007):Forecast Targeting as a Monetary Policy Rule, NBER , Working Paper No. 13716.
BAHNA, M., CEPOI, C.-O., & RADU, R. (2015). Optimal Rules for Monetary Policy: The Case of Romania. International Journal of Academic Research in Business and Social Sciences, 5(12). 51-58.
Copyright: © 2015 The Author(s)
Published by Knowledge Words Publications (www.kwpublications.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode
