Xiaoguang Xu’s research while affiliated with Shenzhen University and other places

Forward guidance is widely considered a useful tool for improving monetary policy transmission. This paper introduces endogenous Delphic guidance in which future policy targets are time-varying and dependent on the future economy. The results show that the performance of inflation-targeting forward guidance depends partially on the forward horizon and the agents’ expectation, while announcing an interim output target could stimulate the economy only under a rational expectation environment and requires a short forward horizon. We also discuss the effectiveness of Odyssean forward guidance which incorporates monetary authorities’ preferences. The results indicate that the effect of a commitment on future paths of an interest-rate rule is based on the agents’ expectations.

This paper evaluates several small open economy DSGE models and the impact of external shock spillovers on small open economies. We investigate five small economies (the UK, Australia, Canada, New Zealand and Taiwan) and find that the welfare consequences vary depending on key domestic economic variables, and the best interest-rate rule varies across models. Then we examine the performances of the four types of models, a preferred result has been found in a model which considers the country risk premium, as the best rule could be obtained as long as the selected parameters are calibrated for particular economies.