Monetary Policy Rule and Taylor Principle in Emerging ASEAN Economies: GMM and DSGE Approaches

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.