Introducing financial stability considerations into Taylor rules in emerging market economies

Blaise Gadanecz, Ken Miyajima and J�rg Urban

Applied Economics Letters, 2015, vol. 22, issue 16, 1320-1324

Abstract: We study optimized Taylor rules that incorporate financial stability considerations, which have been little analysed for emerging market economies. Setting the policy interest rate with a greater financial stability consideration reduces monetary policy effectiveness: a greater effort to reduce output volatility in the nontradables sector, where asset bubbles are prone to build, leads to greater inflation volatility.

Date: 2015
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DOI: 10.1080/13504851.2015.1026579

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