EconPapers    
Economics at your fingertips  
 

Monetary policy, informality and business cycle fluctuations in a developing economy vulnerable to external shocks

Adnan Haider, Musleh-ud Din () and Ejaz Ghani

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops an open economy dynamic stochastic general equilibrium (DSGE) model based on New-Keynesian micro-foundations. Alongside standard features of emerging economies, such as a combination of producer and local currency pricing for exporters, foreign capital inflow in terms of foreign direct investment and oil imports, this model also incorporates informal labor and production sectors. This customization intensifies the exposure of a developing economy to internal and external shocks in a manner consistent with the stylized facts of Business Cycle Fluctuations. We then focus on optimal monetary policy analysis by evaluating alternative interest rate rules and calibrate the model using data from Pakistan economy. The learning and determinacy analysis suggest monetary authority in developing economies to follow Taylor principle in large and to put some weight on exchange rate fluctuations even if there is relatively less inertia in the setting of policy interest rate.

Keywords: Monetary Policy; Informal Economy; Business Cycles; DSGE (search for similar items in EconPapers)
JEL-codes: E26 E32 E37 E52 (search for similar items in EconPapers)
Date: 2012-10-14
New Economics Papers: this item is included in nep-dge, nep-iue, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/42484/1/MPRA_paper_42484.pdf original version (application/pdf)

Related works:
Working Paper: Monetary Policy, Informality and Business Cycle Fluctuations in a Developing Economy Vulnerable to External Shocks (2013) Downloads
Journal Article: Monetary Policy, Informality and Business Cycle Fluctuations in a Developing Economy Vulnerable to External Shocks (2012) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:42484

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2025-03-19
Handle: RePEc:pra:mprapa:42484