Journal
JOURNAL OF MONETARY ECONOMICS
Volume 50, Issue 5, Pages 1109-1146Publisher
ELSEVIER
DOI: 10.1016/S0304-3932(03)00057-6
Keywords
monetary policy; Taylor rule; flexible exchange rates; transition countries; emerging markets
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This paper develops a variant of the IMF's Global Economic Model suitable to analyze macroeconomic dynamics in open economies, and uses it to assess the effectiveness of Taylor rules and inflation-forecast-based (IFB) rules in stabilizing variability in output and inflation. Our findings suggest that a simple IFB rule that does not rely upon any direct estimates of the equilibrium real interest rate and places a relatively high weight on the inflation forecast may perform better in small open economies than conventional Taylor rules. (C) 2003 Elsevier B.V. All rights reserved.
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