Essays in monetary policy rules

This dissertation aims at exploration of a monetary policy rule based on cointegration and error correction techniques.;Chapter 1 presents the historical background that motivated us to explore a monetary policy rule. It also discusses the merits and demerits of the couple of popular monetary policy rules currently available in the literature. The theoretical structure for the analysis is derived from a neoclassical flexible price general equilibrium model. The representative agent formulation allows us to get the simple first order conditions. These first order conditions represent the relationships amongst the variables of interest for this study. The relationships are used as cointegrating relations in the subsequent chapters. The theoretical structure is presented in chapter 2.;Chapter 3 uses the Engle-Granger procedure of estimation of error correction process. In this chapter we have used the variables in percentage change form following the recent suggestions in the literature. In this analysis the cointegration relations obtained from the theory has been imposed. However, the error correction process describes an interest rate rule.;Chapter 4 is an attempt to investigate the importance of structural breaks in the monetary policy analysis. It has been recognized by the economists that US macroeconomic data are subject to structural breaks. A battery of tests have been performed to ensure the presence of break points. We have performed both the single break tests and multiple breaks tests. The multiple breaks tests accept the possibility of two break points in the data.;Chapter 5 discusses the monetary policy rule using the Johansen's multivariate error correction approach. The chief advantage of this procedure is that it allows for the testing of cointegrating relations by the data. We have performed this test allowing for the possibility of the structural breaks discussed in chapter 4. Then we have estimated the monetary policy rule from the vector error correction process. Subsequently the monetary policy rule has been subjected to monetary policy shocks.;Chapter 6 concludes the study.