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

Taguchi, Hiroyuki (2020): Monetary Policy Rule and Taylor Principle by GMM and DSGE Approaches: The Case of Mongolia. Published in: International Journal of Financial Studies , Vol. 8, No. 4 (November 2020): pp. 1-16.

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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.

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