Monetary Policy Reaction Functions of the TICKs: A Quantile Regression Approach

ABSTRACT

This study investigates how Taiwan, India, China, and Korea (TICKs) set interest rates in the context of policy reaction functions using a quantile-based approach. Our results indicate the tendency of a milder response to inflation at low interest rates and greater response at higher quantiles of interest rates, where inflation is presumably higher than desired for China and South Korea. While the response to inflation over the quantiles is significant for India, yet the Taylor principle is less likely to hold. For Taiwan, the results imply that another instrument is employed to deal with its official managed floating currency.

KEY WORDS:

• emerging markets
• monetary policy
• quantile regression
• Taylor rule

JEL CLASSIFICATION:

• C21
• C26
• E52
• E58

Acknowledgments

We would like to thank two anonymous referees for many helpful comments. Any remaining errors are solely ours.

Notes

^1. For the inflation target for China, see http://www.centralbanknews.info/p/inflation-targets.html.

^2. Unit root test results are available from the authors upon request.

^3. Lee (2016) discussed in detail the proper choice of (c_Z,ψ) and suggests a practical rule.

^4. Complete details of which are available upon request from the authors.