NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Monetary Rules for Small, Open, Emerging Economies

Douglas Laxton, Paolo Pesenti

NBER Working Paper No. 9568
Issued in March 2003
NBER Program(s):   IFM

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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Published: Laxton, Douglas and Paolo Pesenti. "Monetary Rules For Small, Open, Emerging Economies," Journal of Monetary Economics, 2003, v50(5,Jul), 110-1146.

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