Optimized Taylor rules with domestic bond yields in emerging market economies

Blaise Gadanecz, Ken Miyajima and J�rg Urban

Applied Economics Letters, 2015, vol. 22, issue 9, 688-692

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.

Date: 2015
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DOI: 10.1080/13504851.2014.969820

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