Whenever financial conditions in the United States are tightened, some emerging economies with relatively fragile economic fundamentals and high dependence on external financing will face massive capital outflows, currency depreciation, external debt repayment pressures, and even a financial crisis.
Given our uncertainty about the true model of the economy, knowing that systematic policy in the form of a Taylor-like rule delivers good outcomes in a variety of models means that these simple, robust rules can provide useful guidance for policy. Moreover, rule-like policies also play an important role in central bank communication.