Monetary Rules for Small, Open, Emerging Economies

59 Pages Posted: 20 Mar 2003 Last revised: 1 Nov 2010

See all articles by Douglas Laxton

Douglas Laxton

International Monetary Fund (IMF) - Research Department

Paolo A. Pesenti

Federal Reserve Bank of New York; National Bureau of Economic Research (NBER)

Date Written: March 2003

Abstract

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.

Suggested Citation

Laxton, Douglas and Pesenti, Paolo A., Monetary Rules for Small, Open, Emerging Economies (March 2003). NBER Working Paper No. w9568. Available at SSRN: https://ssrn.com/abstract=387575

Douglas Laxton

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Paolo A. Pesenti (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-5493 (Phone)
212-720-6831 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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