Interest rate rules and welfare in open economies

Ozge Senay

doi:10.1111/j.1467-9485.2008.00455.x

Interest rate rules and welfare in open economies

Research output: Contribution to journal › Article › peer-review

Abstract

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.

Original language	English
Pages (from-to)	300-329
Number of pages	30
Journal	Scottish Journal of Political Economy
Volume	55
Issue number	3
Early online date	2 Jun 2008
DOIs	https://doi.org/10.1111/j.1467-9485.2008.00455.x
Publication status	Published - Jul 2008

Keywords

Monetary-policy rules
Exchange-rate
Central banks
Business cycles
Euro area
Models
Macroeconomics
Framework
Prices
Welfare
Interest rate rules
Second order approximation

Access to Document

10.1111/j.1467-9485.2008.00455.x

SenaycdmaSJPE2008InterestRateRules
This is an author version of this article, (c) 2008 The author. Journal compilation (c) 2008 Scottish Economic Society, published by Blackwell Publishing Ltd.
Accepted author manuscript, 463 KB

Cite this

@article{384f599ff1024d8eb4e9c9dfd7dd9ef6,

title = "Interest rate rules and welfare in open economies",

abstract = "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.",

keywords = "Monetary-policy rules, Exchange-rate, Central banks, Business cycles, Euro area, Models, Macroeconomics, Framework, Prices, Welfare, Interest rate rules, Second order approximation",

author = "Ozge Senay",

year = "2008",

month = jul,

doi = "10.1111/j.1467-9485.2008.00455.x",

language = "English",

volume = "55",

pages = "300--329",

journal = "Scottish Journal of Political Economy",

issn = "0036-9292",

publisher = "Wiley-Blackwell",

number = "3",

}

TY - JOUR

T1 - Interest rate rules and welfare in open economies

AU - Senay, Ozge

PY - 2008/7

Y1 - 2008/7

N2 - 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.

AB - 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.

KW - Monetary-policy rules

KW - Exchange-rate

KW - Central banks

KW - Business cycles

KW - Euro area

KW - Models

KW - Macroeconomics

KW - Framework

KW - Prices

KW - Welfare

KW - Interest rate rules

KW - Second order approximation

UR - http://www.scopus.com/inward/record.url?scp=44949263928&partnerID=8YFLogxK

U2 - 10.1111/j.1467-9485.2008.00455.x

DO - 10.1111/j.1467-9485.2008.00455.x

M3 - Article

SN - 0036-9292

VL - 55

SP - 300

EP - 329

JO - Scottish Journal of Political Economy

JF - Scottish Journal of Political Economy

IS - 3

ER -

Interest rate rules and welfare in open economies

Abstract

Keywords

Access to Document

Other files and links

Fingerprint

Cite this