Structural shifts in monetary policy conduct, inflation environment, and exchange rate pass-through

点击翻译按钮获取中文摘要

The prime objective of this research is to examine the empirical validity of the so-called Taylor hypothesis regarding the relationship between structural shifts in macroeconomic environments, particularly those in inflation and monetary policy, and the rate of exchange rate pass-through. The main results of our empirical analyses using OECD data can be summarized as follows.1) In applying the endogenous structural break tests, we find that since the collapse of the Bretton Woods system many industrialized economies have experienced significant structural shifts in their inflation processes. Furthermore, it is common among the sample economies to experience such a structural break in the 1980s, and another in the 1990s.2) Many OECD countries made important alterations to their monetary policy conducts at least in either the 1980s or the 1990s, and in some cases in both. For many countries for which the above mentioned test identifies structural breaks, these breaks are found to have occurred following the changes in monetary policy conducts. Hence, it is quite likely that improvements in monetary policy conducts led to structural shifts in inflation processes.3) According to our estimation results, the rates of exchange rate pass-though indeed declined in response to the low inflation environment induced by the improvement of monetary policy conducts.