credibility, EMS, bivariate Markov regime-switching autoregressive models

Credibility of Interest Rate Policies in Eight EMS Countries: An Application of the Markov Regime-Switching

This paper uses the Markov regime-switching modelling in a bivariate Autoregressive framework to study the credibility of monetary policy in eight member countries of the European Monetary System (EMS) during the period 1979 to 1998. The eight countries are: Austria, Belgium, France, Finland, Italy, the Netherlands, Portugal and Spain; a tenth country, Germany, is used as a benchmark case. The output-gap variability and the inflation variability variables are incorporated in the determination of the preferences of individual member countries of the EMS in the conduct of monetary policy.