How much monetary policy rules do we need to estimate DSGE model for Russia?

This paper presents a three-sector DSGE model for a small open economy under the intermediate exchange rate regime. The central bank balance sheet equations are added to allow introducing two different monetary policy rules in the model. The principal question is how many independent monetary policy rules we need to describe Russian monetary policy in 2001–2012. To get an answer we perform Bayesian estimation of the DSGE model for four different combinations of monetary policy rules. The main finding of the paper is that describing dynamics of 14 observable variables requires using Taylor rule together with the exchange rate adjustment rule. Two rules do not make an overdeterminacy; they have original transmission channels and reflect two different stabilization principles: output and inflation stabilization (Taylor rule) vs. balance of payments stabilization (exchange ratebased rule).