Interest rate rules and welfare in open economies
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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.
Senay , O 2008 , ' Interest rate rules and welfare in open economies ' Scottish Journal of Political Economy , vol 55 , no. 3 , pp. 300-329 . DOI: 10.1111/j.1467-9485.2008.00455.x
Scottish Journal of Political Economy
This is an author version of this article, (c) 2008 The author. Journal compilation (c) 2008 Scottish Economic Society, published by Blackwell Publishing Ltd.
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