International Journal of Financial Studies (Nov 2020)

Monetary Policy Rule and Taylor Principle in Mongolia: GMM and DSGE Approaches

  • Hiroyuki Taguchi,
  • Ganbayar Gunbileg

DOI
https://doi.org/10.3390/ijfs8040071
Journal volume & issue
Vol. 8, no. 4
p. 71

Abstract

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This article aims to examine the monetary policy rule under an inflation targeting in Mongolia with a focus on its conformity to the Taylor principle, through two kinds of approaches: a monetary policy reaction function by the generalized-method-of-moments (GMM) estimation and a New Keynesian dynamic stochastic general equilibrium (DSGE) model with a small open economy version by the Bayesian estimation. The main findings are summarized as follows. First, the GMM estimation identified an inflation-responsive rule fulfilling the Taylor principle in the recent phase of the Mongolian inflation targeting. Second, the DSGE-model estimation endorsed the GMM estimation by producing a consistent outcome on the Mongolian monetary policy rule. Third, the Mongolian rule was estimated to have a weaker response to inflation than the rules of the other emerging Asian adopters of an inflation targeting.

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