Investigation of Monetary Policy Preference Evolution - the Case of Small Open Economies

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Recent research has devoted significant attention to estimating the systematic components of monetary policy using Taylor-type policy rules. Estimated policy rules incorporate information about the policymaker’s objective function and thus are used to decipher the specific objectives and preferences of the monetary authority. However, the coefficients of the policy rule depend both on the preference parameters and the parameters of the structural model. The mapping from deeper parameters to the parameters of the policy rule can be complicated. This book develops a unified approach of econometric policy evaluation in the context of New Keynesian open economy models. Focusing on policies conducted by the Bank of Canada and the Swiss National Bank, this analysis estimates the parameters of a forward- looking structural model jointly with the preference parameters of the central bank’s objective function. This approach should help researchers, market participants, and policy makers to analyze a wide spectrum of questions related to central bank policy evolution and credibility.