Monetary Rules for Small, Open, Emerging Economies

Laxton, Douglas; Pesenti, Paolo

doi:10.3386/w9568

Cited by 150 publications

(206 citation statements)

References 34 publications

Supporting

Mentioning

201

Contrasting

Unclassified

Order By: Relevance

“…This problem can be discovered by evaluating the residual matrix R of equation (4). The Czech-EU calibration of GEM (Laxton and Pesenti, 2003) suffers from this problem. The following table shows the relative residual sizes in a few norms of the doubling and recursive algorithms for the second-order simulation.…”

Section: Doubling Algorithmmentioning

confidence: 93%

“…The first is the GEM of Laxton and Pesenti (2003), the other two are optimal portfolio problems with 12 and 4 assets respectively. The table also shows how many doubling steps were needed to obtain the size of M j+1 y j contribution less than the tolerance 10 −30 .…”

Section: Doubling Algorithmmentioning

confidence: 99%

“…To see how large (4) can be, take the Czech-EU calibration of GEM as an example (Laxton and Pesenti, 2003). It has n = 244 equations and 49 forwardlooking variables.…”

Section: Complexity Of the Problemmentioning

confidence: 99%

“…The author's implementation of the doubling algorithm needs almost three times as much computational time and twice as much memory as the new recursive algorithm. The superiority of the new recursive approach is illustrated with the solution to a second-order approximation to the Global Economy Model (GEM), calibrated for the Czech Republic and Euro area (Laxton and Pesenti, 2003). In this particularly difficult model, the doubling algorithm yields a relative error of equation residual of order 10 −1 , whereas the new recursive method is of order 10 −14 .…”

mentioning

confidence: 98%

See 3 more Smart Citations

Solving SDGE Models: A New Algorithm for the Sylvester Equation

Kamenik

2005

Comput Econ

View full text Add to dashboard Cite

This paper presents a new numerical algorithm for solving the Sylvester equation involved in higher-order perturbation methods developed for solving stochastic dynamic general equilibrium models. The new algorithm surpasses other methods used so far (including the very popular doubling algorithm) in terms of computational time, memory consumption, and numerical stability. Copyright Springer Science + Business Media, Inc. 2005stochastic dynamic general equilibrium models, high-order permutations, computational algorithms,

show abstract

Section: Doubling Algorithmmentioning

confidence: 93%

Section: Doubling Algorithmmentioning

confidence: 99%

“…To see how large (4) can be, take the Czech-EU calibration of GEM as an example (Laxton and Pesenti, 2003). It has n = 244 equations and 49 forwardlooking variables.…”

Section: Complexity Of the Problemmentioning

confidence: 99%

mentioning

confidence: 98%

See 2 more Smart Citations

Solving SDGE Models: A New Algorithm for the Sylvester Equation

Kamenik

2005

Comput Econ

View full text Add to dashboard Cite

show abstract

“…A large volume of literature examines the applicability and merits of various types of monetary policy rules in emerging economies (see Mohanty and Klau 2004;Devereux and Lane 2001;Laxton and Pesenti 2003;Morón and Winkelried 2003;Lahiri and Végh 2001;Taylor 2000, among others). In general, these studies find that the exchange rate is a significant source of shock and that it may be beneficial for policymakers to account for movements in the exchange rate when setting policy decisions.…”

mentioning

confidence: 99%

Financial crisis, effective policy rules and bounded rationality in a New Keynesian framework

Al-Eyd

Hall

2011

Econ Change Restruct

View full text Add to dashboard Cite

This paper extends a standard open-economy New Keynesian model to include a third-generation ''balance sheet effect'' which is made operational through an endogenous risk premium impacting on investment. Using rational expectations and adaptive learning solutions, the efficiency of alternative monetary policy rules is examined during a period of financial crisis. We find that the Taylor rule is the welfare superior policy, questioning the idea of an ''information encompassing'' inflation-forecast based rule. Under adaptive learning we find additional policy traction and less instrument variability in rules augmented with the exchange rate. All rules, however, advocate a sharp initial interest rate response to the crisis.

show abstract

Why does monetary policy respond to the real exchange rate in small open economies? A Bayesian perspective

García

González

2013

Empir Econ

View full text Add to dashboard Cite

To estimate how monetary policy works in small open economies, we build a dynamic stochastic general equilibrium model that incorporates the basic features of these economies. We conclude that the monetary policy in a group of small open economies (including Australia, Chile, Colombia, Peru, and New Zealand) is rather similar to that observed in closed economies. Our results also indicate, however, that there are strong differences due to shocks from the international financial markets (mainly risk premium shocks). These differences explain most of the variability of the real exchange rate, which has important reallocation effects in the short run. Our results are consistent with an old idea from the Mundell-Fleming model: namely, a real depreciation to confront a risk premium shock is expansive or procyclical, in contradiction to the predictions of the balance sheet effect, the J curve effect, and the introduction of working capital into RBC models. In line with this last result, we have strong evidence that only in one of the five countries analyzed in this study does not intervene the real exchange rate, the case of New Zealand.

show abstract

Monetary Rules for Small, Open, Emerging Economies

Abstract: ABSTRACT

Cited by 150 publications

References 34 publications

Solving SDGE Models: A New Algorithm for the Sylvester Equation

Solving SDGE Models: A New Algorithm for the Sylvester Equation

Financial crisis, effective policy rules and bounded rationality in a New Keynesian framework

Why does monetary policy respond to the real exchange rate in small open economies? A Bayesian perspective

Contact Info

Product

Resources

About