Central bank inability and Taylor rule in developing countries

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1 Citation (Scopus)


This paper seeks to adjust Taylor rule to mimic an environment that has central bank inability (losses). Moreover, the current paper is aiming at investigating the effect of the new features of Taylor rule within a context of a New-Keynesian model on a developing economy. The current paper concludes that we can utilize Taylor rule within a New-Keynesian model to introduce the influence of the central bank inability on the economy. Central bank inability decreases both expected future real interest rate and expected future real output. On the contrary, it increases expected future nominal interest rate and expected future inflation rate. Moreover, we prove that the effect of central bank inability has larger effect on the expected inflation rate more than the influence of targeted inflation rate.

Original languageEnglish
Pages (from-to)395-409
Number of pages15
JournalInternational Review of Economics
Issue number4
Publication statusPublished - Dec 2010
Externally publishedYes


  • Central bank ability
  • Central bank losses
  • Developing countries
  • Inflation rate
  • New-Keynesian model
  • Taylor rule

ASJC Scopus subject areas

  • General Economics,Econometrics and Finance


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