Modern features of a monetary policy of the BRICS countries: an empirical analysis and modeling results of a modified Taylor rule

The article is devoted to modern issues of a monetary policy of the BRICS countries. Currently under the fragile economic situation the role of central banks is increasing; governments search for some new effective methods to stimulate economic growth. One of the key factors of progress is price stability support that is connected with a monetary policy and implementation of an inflation targeting. Nowadays this monetary policy framework has been adopted officially by most of the BRICS countries, but the issues concerning what methods and instruments should be used are still being discussed. The key issue of the discussion is whether it is necessary to set a flexible exchange rate arrangement under the inflation targeting conditions. In this connection, the expediency of a central bank to manage the national currency exchange rate is being discussed as it may conflict with the declared monetary policy. The main task of the present research is to assess the impact of a real effective exchange rate index that is considered to be an element of a monetary policy of the BRICS Central banks on a base interest rate. For this purpose an econometric model based on a modified Taylor's equation has been suggested. This model demonstrates the needs of developing economies of the BRICS countries for both price and exchange rate stability. Panel data analysis together with econometric modeling tools have been used to calculate the empirical part of the study. Regression coefficient assessments have proven the significance of these tools; the econometric modeling results have confirmed that Central banks of the BRICS countries mostly direct their attention to basis tools of the inflation targeting and economic agent expectations when achieving price stability. In the terms of the obtained data we may conclude, that it is necessary to consider an exchange rate when implementing a monetary policy in the BRICS countries. Further we will research 1) monetary policy in each of the BRICS countries in detail and will reveal long-terms connections among indices in the reaction equation of a central bank using co-integration vectors in a vector model of error correction; 2) interference of the policy of the BRICS Central banks and whether they are subject to globalization in the world finance sphere.