{"title":"Understanding and predicting monetary policy framework choice in developing countries","authors":"Megan Sullivan","doi":"10.1016/j.econmod.2024.106783","DOIUrl":null,"url":null,"abstract":"<div><p>We examine the choice of monetary policy framework (MPF) of 87 countries over three decades (1985–2017). We confirm the importance of a range of factors including financial development, trade networks, strength of democracy, and size of the economy. We improve upon previous work on MPF choice by testing the model’s prediction accuracy on out-of-sample data, and addressing endogeneity. We also split the factors that determine MPF choice into three thematic groups: optimum currency area (OCA), financial strength, and political/institutional strength. This is the first paper to provide insight into which factors determine MPF choice for developing countries, utilising a relatively new MPF classification. We achieve an average prediction accuracy of approximately 67%, using two different cross-validation methods. This outperforms a naïve model, which assumes all countries belong to the most common category (discretion), and is good at predicting the less common categories as well.</p></div>","PeriodicalId":48419,"journal":{"name":"Economic Modelling","volume":null,"pages":null},"PeriodicalIF":4.2000,"publicationDate":"2024-05-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0264999324001391/pdfft?md5=e8456e4086a4e9226f8fd34305066c8e&pid=1-s2.0-S0264999324001391-main.pdf","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Economic Modelling","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0264999324001391","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
We examine the choice of monetary policy framework (MPF) of 87 countries over three decades (1985–2017). We confirm the importance of a range of factors including financial development, trade networks, strength of democracy, and size of the economy. We improve upon previous work on MPF choice by testing the model’s prediction accuracy on out-of-sample data, and addressing endogeneity. We also split the factors that determine MPF choice into three thematic groups: optimum currency area (OCA), financial strength, and political/institutional strength. This is the first paper to provide insight into which factors determine MPF choice for developing countries, utilising a relatively new MPF classification. We achieve an average prediction accuracy of approximately 67%, using two different cross-validation methods. This outperforms a naïve model, which assumes all countries belong to the most common category (discretion), and is good at predicting the less common categories as well.
期刊介绍:
Economic Modelling fills a major gap in the economics literature, providing a single source of both theoretical and applied papers on economic modelling. The journal prime objective is to provide an international review of the state-of-the-art in economic modelling. Economic Modelling publishes the complete versions of many large-scale models of industrially advanced economies which have been developed for policy analysis. Examples are the Bank of England Model and the US Federal Reserve Board Model which had hitherto been unpublished. As individual models are revised and updated, the journal publishes subsequent papers dealing with these revisions, so keeping its readers as up to date as possible.