Monetary Policy, Informality and Business Cycle Fluctuations in a Developing Economy Vulnerable to External Shocks

Adnan Haider (), Musleh-ud Din () and Ejaz Ghani ()
Additional contact information
Adnan Haider: Institute of Business Administration (IBA), Karachi, Pakistan.
Ejaz Ghani: Pakistan Institute of Development Economics (PIDE)

No 65, SBP Working Paper Series from State Bank of Pakistan, Research Department

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 that monetary authority in developing economies should broadly follow Taylor principle and 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 (search for similar items in EconPapers)
Pages: 72 pages
Date: 2013-09
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sbp.org.pk/repec/sbp/wpaper/wp65.pdf First version, 2013 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.sbp.org.pk/repec/sbp/wpaper/wp65.pdf [301 Moved Permanently]--> https://www.sbp.org.pk/repec/sbp/wpaper/wp65.pdf)

Related works:
Journal Article: Monetary Policy, Informality and Business Cycle Fluctuations in a Developing Economy Vulnerable to External Shocks (2012)
Working Paper: Monetary policy, informality and business cycle fluctuations in a developing economy vulnerable to external shocks (2012)
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:sbp:wpaper:65

Access Statistics for this paper

More papers in SBP Working Paper Series from State Bank of Pakistan, Research Department Contact information at EDIRC.
Bibliographic data for series maintained by Faisal Saleem ().