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Monetary Policy Rule and Taylor Principle by GMM and DSGE Approaches: The Case of Mongolia

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  • Taguchi, Hiroyuki

Abstract

This article aims to examine the monetary policy rule under inflation targeting in Mongolia with a focus on its conformity to the Taylor principle, through the two kinds of approaches: a monetary policy reaction function by the generalized-method-of-moments (GMM) estimation and the New Keynesian dynamic stochastic general equilibrium (DSGE) model with a small open economy version by the Bayesian estimation. The main findings are summarized as follows. First, the GMM estimation identified the inflation-responsive rule fulfilling the Taylor principle in the recent phase of the Mongolian inflation targeting. Second, the DSGE-model estimation endorsed the GMM estimation by producing a consistent outcome on the Mongolian monetary policy rule. Third, the Mongolian rule was estimated to have a weaker response to inflation than the rules of the other emerging Asian adopters of inflation targeting.

Suggested Citation

  • Taguchi, Hiroyuki, 2020. "Monetary Policy Rule and Taylor Principle by GMM and DSGE Approaches: The Case of Mongolia," MPRA Paper 104182, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:104182
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    References listed on IDEAS

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    Cited by:

    1. Gunbileg Ganbayar, 2021. "Analysis of External Debt Sustainability in Mongolia: an Estimated DSGE Approach," Sustainability, MDPI, vol. 13(15), pages 1-17, July.
    2. Gunbileg Ganbayar, 2021. "An Investigation into the Sources of Depreciations in Mongolian Tugrik Exchange Rate: A Structural VAR Approach," JRFM, MDPI, vol. 14(11), pages 1-16, November.

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    More about this item

    Keywords

    Monetary policy rule; Taylor Principle; Mongolia; Inflation targeting; monetary policy reaction function; GMM; the New Keynesian DSGE model;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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