Stability and policy rules in emerging markets
AbstractStability results for an open economy DSGE adapted to an emerging market (SOEME) with a dualistic structure have the same structure as in the original model, but those derived for the simulated version turn out to impose no restriction on the coefficient of inflation, but rather a threshold on the coefficient of the output gap. Other rigidities, lags and some degree of backward looking behavior in the simulated SOEME model arising from its calibration to an emerging market, may be helping provide a nominal anchor. Estimation of a Taylor rule for India, simulations in the SOEME model itself and a variant with government debt, confirm the analytical result. Implications are, first, optimization can be as effective as following a monetary policy rule. Second, knowledge of the specific rigidities in an economy can give useful inputs for the design of policy-their effect on stability should be more carefully researched.
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Bibliographic InfoPaper provided by Indira Gandhi Institute of Development Research, Mumbai, India in its series Indira Gandhi Institute of Development Research, Mumbai Working Papers with number 2012-004.
Length: 33 pages
Date of creation: Jan 2012
Date of revision:
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DSGE; emerging economy; rigidities; stability; optimization; Taylor rule;
Find related papers by JEL classification:
- E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-28 (All new papers)
- NEP-CMP-2012-03-28 (Computational Economics)
- NEP-DGE-2012-03-28 (Dynamic General Equilibrium)
- NEP-MAC-2012-03-28 (Macroeconomics)
- NEP-MON-2012-03-28 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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