Working Paper
Optimal Simple Targeting Rules for Small Open Economies
Abstract: This paper solves for optimal policy rules in a stylized small open economy model under a spectrum of targeting regimes. These policy reaction functions are presented as feedback rules highlighting the dominant state variables in each rule. Optimal simple rules – rules that exploit a reduced information set – are explored to assess how much is lost when information is excluded from the optimal state-contingent rule. For the model analyzed we find that some optimal simple rules can approximate reasonably well the optimal state-contingent rule, these simple rules contain the real exchange rate. Knowing which variables underpin the performance of the optimal state-contingent rule is important for developing simple, robust, rules with good stabilizing properties.
https://doi.org/10.24148/wp2000-20
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Bibliographic Information
Provider: Federal Reserve Bank of San Francisco
Part of Series: Working Paper Series
Publication Date: 2000-12-01
Number: 2000-20