Li Qin and Moïse Sidiropoulos

Correspondence: Li Qin, evensqin@hotmail.com

EDAM - École de Design de l'Art et de Management, France

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Abstract

This paper studies optimal interest-rate rules that are robust with respect to exogenous shocks in open economies. When derived from closed economy optimization models, theoretical interest-rate rules tend to be more aggressive than empirical rules. We show that accounting for openness in an economy results in optimal rules that correspond more closely to the rules used in practice: the robustly optimal rules derived in an open-economy model exhibit less inertia and sensitivity to variations in macroeconomic variables.

Keywords:

  robustness, optimal interest-rate rule, degree of openness

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