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Swiss Journal of Economics and Statistics

, Volume 145, Issue 2, pp 187–220 | Cite as

Estimating a Taylor Rule with Markov Switching Regimes for Switzerland

  • Alexander Perruchoud
Open Access
Article

Summary

In this paper a Taylor rule including the exchange rate gap is estimated for Switzerland under the assumption that the parameters depend on two states governed by a Markov switching process. The estimates from a Gibbs sampler suggest the presence of a smooth and an active regime. The former is characterized by a high degree of interest rate smoothing. By contrast, the aggressive regime shows much less smoothing. The regime probabilities indicate that Swiss monetary policy is well characterized by the smooth regime with short interruptions by the active regime. Many of these few active periods can be associated with specific and unusual events. Furthermore, the analysis makes clear that often the active regime prevailed in periods where the Swiss National Bank decided to counteract sharp appreciations or depreciations of the Swiss franc.

Keywords

Taylor rule Markov switching Bayesian inference Gibbs sampling 

JEL-Classification

C11 C15 E52 E58 

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Copyright information

© Swiss Society of Economics and Statistics 2009

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of CaliforniaSan DiegoUSA

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