Sergey S. Sarkisyan Impact of the Monetary Policy Rules on the Inflation Targeting

Abstract

The standard version of the Taylor rule includes the inflation gap and the GDP gap in the right-hand side. I describe a modified version of it, where the exchange rate growth also determines the interest rate change. I estimate this version for a number of IT and non-IT countries in the periods before and after the financial crisis of 2008. First, countries of both groups are leading the similar politics post 2008. Second, if a central bank pays more attention to the inflation gap and GDP growth, it has a higher probability of an inflation target achievement.

Keywords: inflation targeting, monetary policy rules, GDP growth rate, logit.

JEL codes:  C23, E52, O42.