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Monetary rules for small, open, emerging economies

  • Laxton, Douglas
  • Pesenti, Paolo

This paper develops a variant of the IMF's Global Economic Model (GEM) 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.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 50 (2003)
Issue (Month): 5 (July)
Pages: 1109-1146

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Handle: RePEc:eee:moneco:v:50:y:2003:i:5:p:1109-1146
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