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Monetary Rules for Small, Open, Emerging Economies

  • Douglas Laxton
  • Paolo Pesenti

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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9568.

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Date of creation: Mar 2003
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Publication status: published as Laxton, Douglas and Paolo Pesenti. "Monetary Rules For Small, Open, Emerging Economies," Journal of Monetary Economics, 2003, v50(5,Jul), 110-1146.
Handle: RePEc:nbr:nberwo:9568
Note: IFM
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