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Optimized Taylor rules with domestic bond yields in emerging market economies

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  • Blaise Gadanecz
  • Ken Miyajima
  • J�rg Urban

Abstract

We study optimized Taylor rules with the appropriate lag structure, which has been little done for emerging market economies. Setting the policy interest rate in response to movements in domestic long-term bond yields, in addition to the output gap, the inflation gap and the exchange rate, can make monetary policy more effective. But a more complex rule can reduce monetary policy effectiveness, notably in the presence of uncertainty about the effects of capital flows on domestic monetary conditions.

Suggested Citation

  • Blaise Gadanecz & Ken Miyajima & J�rg Urban, 2015. "Optimized Taylor rules with domestic bond yields in emerging market economies," Applied Economics Letters, Taylor & Francis Journals, vol. 22(9), pages 688-692, June.
    • Handle: RePEc:taf:apeclt:v:22:y:2015:i:9:p:688-692
    DOI: 10.1080/13504851.2014.969820
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    References listed on IDEAS

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    1. Aizenman, Joshua & Hutchison, Michael & Noy, Ilan, 2011. "Inflation Targeting and Real Exchange Rates in Emerging Markets," World Development, Elsevier, vol. 39(5), pages 712-724, May.
    2. Nicoletta Batini & Andrew Haldane, 1999. "Forward-Looking Rules for Monetary Policy," NBER Chapters, in: Monetary Policy Rules, pages 157-202, National Bureau of Economic Research, Inc.
    3. Garcia, Carlos J. & Restrepo, Jorge E. & Roger, Scott, 2011. "How much should inflation targeters care about the exchange rate?," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1590-1617.
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    Cited by:

    1. Bogdan CAPRARU & Norel Ionut MOISE & Andrei RADULESCU, 2015. "The Monetary Policy Of The National Bank Of Romania In The Inflation Targeting Era. A Taylor Rule Approach," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 16, pages 91-102, December.
    2. Ken Miyajima, 2020. "Exchange rate volatility and pass‐through to inflation in South Africa," African Development Review, African Development Bank, vol. 32(3), pages 404-418, September.
    3. Gadanecz, Blaise & Miyajima, Ken & Shu, Chang, 2018. "Emerging market local currency sovereign bond yields: The role of exchange rate risk," International Review of Economics & Finance, Elsevier, vol. 57(C), pages 371-401.

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