Abstract

We estimate the implied Taylor rule under monetary targeting framework using quarterly data observed over 2002q2- 2016q4 to examine whether the central bank took proactive actions to anticipated inflationary shocks. We also examine whether monetary policy involved interest rate smoothing. Forward-looking assumption provides evidence for implied Taylor-type rule, suggesting proactive actions by the central bank against expected inflation and output gaps. Findings also show evidence of interest rate adjustment, 􀁌􀁐􀁓􀁏􀁜􀁌􀁑􀁊􀀃 􀁗􀁋􀁈􀀃 􀁆􀁈􀁑􀁗􀁕􀁄􀁏􀀃 􀁅􀁄􀁑􀁎􀂶􀁖􀀃 􀁆􀁄􀁘􀁗􀁌􀁒􀁘􀁖􀀃 􀁅􀁈􀁋􀁄􀁙􀁌􀁒􀁕􀀃 􀁗􀁒􀀃 􀁌􀁑􀁗􀁈􀁕􀁈􀁖􀁗􀀃 􀁕􀁄􀁗􀁈􀀃 movement. However, there is no evidence for proactive actions to exchange rate movements. Since monetary policy framework is monetary targeting, the Taylor-type rule estimates are implied rather than explicit outcomes. These findings suggest feasibility for the central bank to switch from monetary targeting framework to price-based framework.

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