ISSN: 2056-3736 (Online Version) | 2056-3728 (Print Version)

Taylor Principle under Inflation Targeting in Emerging ASEAN Economies: GMM and DSGE Approaches

Hiroyuki Taguchi, Kenichi Tamegawa and Mesa Wanasilp

Correspondence: Hiroyuki Taguchi, htaguchi@mail.saitama-u.ac.jp

Saitama University, Japan

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Abstract

This paper aims to reassess the performances of inflation targeting adopted by emerging ASEAN countries, Indonesia, the Philippines and Thailand, by examining their monetary policy rules, both through generalized-method-of-moments (GMM) estimations of policy reaction functions and through Bayesian estimations of the New Keynesian dynamic-stochastic-general-equilibrium (DSGE) model. The main findings are summarized as follows. First, the GMM estimations identified inflation-responsive rules fulfilling the Taylor principle, with a forward-looking manner in Indonesia and Thailand and with a contemporaneous way in the Philippines. Second, the Bayesian estimations of the New Keynesian DSGE could reassure the GMM estimation results, as the former estimations produced consistent outcomes with the latter ones on the policy rate reactions to inflation with the Taylor principle.

Keywords:

  Taylor principle; Inflation targeting; Emerging ASEAN; Generalized method of moments (GMM); New Keynesian dynamic stochastic general equilibrium (DSGE) model


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