Siok Kun, Sek (2009): The impacts of economic structures on the performance of simple policy rules in a small open economy. Published in: VDM Verlag (2010)
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Applying a stochastic dynamic general equilibrium model, the performance of various simple rules is analyzed in a small open economy context. The aspects that are considered in the analysis include the degree of exchange rate pass-through, trade openness, the policy objective and the source and persistency of shocks. The main objective of this analysis is to investigate if the rule reacts to exchange rate performs better than the basic closed economy rule without exchange rate term. Comparison on the performances is also made between the consumer inflation targeting and domestic inflation targeting rules. The results show that adding the exchange rate term to the policy rule enhances improvement especially in the higher pass-through case. The superior rule is the hybrid rule that reacts to the exchange rate term. CPI inflation targeting rules outperform the domestic inflation targeting rules in term of welfare loss. However, more complicated domestic inflation targeting rules generate lower loss in term of relative loss. On the second part of this chapter, comparisons on the performances of different exchange rate regimes are made under different source and persistency of shocks. The floating (pegged) regime is favored under more prominent real (nominal) shocks. The results suggest that emerging countries that experience very large real shocks should float their exchange rate.
|Item Type:||MPRA Paper|
|Original Title:||The impacts of economic structures on the performance of simple policy rules in a small open economy|
|English Title:||The impacts of economic structures on the performance of simple policy rules in a small open economy|
|Keywords:||simple policy rule, exchange rate pass-through, open economy model|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
N - Economic History > N1 - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations > N15 - Asia including Middle East
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General
N - Economic History > N2 - Financial Markets and Institutions > N25 - Asia including Middle East
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
|Depositing User:||siok kun sek|
|Date Deposited:||17. Sep 2010 11:15|
|Last Modified:||16. Feb 2013 01:05|
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