Volume 9, Issue 3, November 2014, Pages 1245–1257
Yosra BAAZIZ1 and Moez LABIDI2
1 EAS, University of Monastir, Tunisia
2 EAS, University of Monastir, Tunisia
Original language: English
Copyright © 2014 ISSR Journals. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Using monthly data of Egypt over the period from 2008:M6 to 2013:M1, we extend the linear Taylor rule to a regime-switching framework, where the transition from one regime to another occurs in a smooth way, using a logistic smooth transition regression (LSTR) approach. We find that the nonlinear Taylor rule improves its performance with the advent of special events, such as the global financial crisis in 2008 and the general political instability defined by outbreaks of revolution.
In particular, our results show that the adoption of a nonlinear speci?cation instead of a linear one leads to a reduction in errors of 90 basis points in 2008 and 20 basis points in 2012.
Author Keywords: Policy rule, Central bank, Taylor rule, Nonlinearity.
Yosra BAAZIZ1 and Moez LABIDI2
1 EAS, University of Monastir, Tunisia
2 EAS, University of Monastir, Tunisia
Original language: English
Copyright © 2014 ISSR Journals. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Abstract
Using monthly data of Egypt over the period from 2008:M6 to 2013:M1, we extend the linear Taylor rule to a regime-switching framework, where the transition from one regime to another occurs in a smooth way, using a logistic smooth transition regression (LSTR) approach. We find that the nonlinear Taylor rule improves its performance with the advent of special events, such as the global financial crisis in 2008 and the general political instability defined by outbreaks of revolution.
In particular, our results show that the adoption of a nonlinear speci?cation instead of a linear one leads to a reduction in errors of 90 basis points in 2008 and 20 basis points in 2012.
Author Keywords: Policy rule, Central bank, Taylor rule, Nonlinearity.
How to Cite this Article
Yosra BAAZIZ and Moez LABIDI, “What can nonlinear Taylor rule say about the Egyptian monetary policy conduct?,” International Journal of Innovation and Applied Studies, vol. 9, no. 3, pp. 1245–1257, November 2014.
