Together or Apart? Monetary Policy Divergences in the G4

  • Samuel Howorth
  • Domenico Lombardi
  • Pierre L. SiklosEmail author
Research Article


We evaluate monetary policy divergence in the G4. A Taylor rule is extended that admits a global element and also allows for unconventional monetary policy to be reflected in a shadow policy rate. We propose a policy divergence index based on observed, fitted, or shadow policy rates but which interprets the stance of monetary as dictated by the real interest rate. In spite of flexible exchange rates, each economy’s monetary policy is significantly impacted by a global element, pre and post-crisis. Our divergence index also suggests more divergence in the stance of monetary policy than if nominal policy rates alone are compared, whether observed or shadow rates are used. Nevertheless, we conclude that US monetary policy’s impact among other systemically important economies has increased since the global financial crisis although divergences persist.


Monetary policy rule Policy divergence G4 

JEL Classification

E58 E43 E31 E32 



This is a CIGI (Centre for International Governance Innovations)-sponsored research project. The opinions in the paper are those of the authors and not the institutions that supported this research. Domenico Lombardi was Director of the Global Economy program at CIGI when this paper was written, Samuel Howorth was a research associate, and Pierre Siklos is a CIGI Senior Fellow, and Professor of Economics at Wilfrid Laurier University and the Balsillie School of International Affairs. The authors are grateful to the Editor and an anonymous referee for comments that improved the paper considerably. Additional results not presented in this paper are available in a separate appendix. The raw data will be posted on


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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  • Samuel Howorth
    • 1
  • Domenico Lombardi
    • 2
  • Pierre L. Siklos
    • 1
    • 3
    • 4
    Email author
  1. 1.CIGIWaterlooCanada
  2. 2.Banca di San Marino S.p.AFaetanoSan Marino
  3. 3.WLUWaterlooCanada
  4. 4.BSIAWorcesterUK

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