Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/323971 
Year of Publication: 
2024
Citation: 
[Journal:] Journal of Macroeconomics [ISSN:] 1873-152X [Volume:] 80 [Article No.:] 103604 [Publisher:] Elsevier [Place:] Amsterdam [Year:] 2024 [Pages:] 1-37
Publisher: 
Elsevier, Amsterdam
Abstract: 
Since the Global Financial Crisis, a lively debate has emerged regarding the monetary policy rule the central bank of a small open economy (SOE) follows and should follow. By identifying the monetary policy rule that best fits historical data and minimizes central bank loss functions, this study contributes to this debate. We estimate a medium-scale micro-founded SOE model under various monetary policy rules using Israeli data from 1994 to 2019. Our results indicate that the model achieves a better fit to historical data when assuming inflation targeting (IT) compared to nominal income targeting (NGDP). Given central bank goals, shock uncertainty, and limited information, NGDP targeting rules may have been more desirable over the last three decades than IT rules.
Subjects: 
Monetary policy rule
Central bank loss
Inflation targeting
NGDP targeting
Limited information
Monetary policy estimation
DSGE models
Incomplete information
JEL: 
C11
C54
E32
E52
E58
D83
D80
E59
Published Version’s DOI: 
Document Type: 
Article
Document Version: 
Manuscript Version (Preprint)
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