Interest rate rules and welfare in open economies
SCOTTISH JOURNAL OF POLITICAL ECONOMY, cilt.55, sa.3, ss.300-329, 2008 (SSCI, Scopus)
- Yayın Türü: Makale / Tam Makale
- Cilt numarası: 55 Sayı: 3
- Basım Tarihi: 2008
- Doi Numarası: 10.1111/j.1467-9485.2008.00455.x
- Dergi Adı: SCOTTISH JOURNAL OF POLITICAL ECONOMY
- Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus
- Sayfa Sayıları: ss.300-329
- Açık Arşiv Koleksiyonu: AVESİS Açık Erişim Koleksiyonu
- Orta Doğu Teknik Üniversitesi Adresli: Hayır
Özet
This paper analyses the welfare performance of a set of five alternative interest rate rules in an open economy stochastic dynamic general equilibrium model with nominal rigidities. A rule with a lagged interest rate term, high feedback on inflation and low feedback on output is found to yield the highest welfare for a small open economy. This result is robust across different degrees of openness, different sources of home and foreign shocks, alternative foreign monetary rules and different specifications for price-setting behaviour. The same rule emerges as both the Nash and cooperative equilibria in a two-country version of the model.