This paper models the PBC's operating procedures in a two-stage vector autoregression framework. We decompose changes in policy variables into exogenous and endogenous components in order to find a “clean” monetary policy indicator whose changes are mainly policy induced. Our main findings are twofold. First, the PBC's operating procedures have evolved over time; since about 2006, they have developed to a relatively stable regime. Second, its operating procedures are neither pure interest rate targeting nor pure reserves targeting, but a mixture. A set of indicators all contain information about the policy stance. Finally, we construct a new composite indicator of the overall policy stance.
|Number of pages||24|
|Journal||Journal of International Money and Finance|
|Early online date||9 Jul 2015|
|Publication status||Published - Dec 2015|