But it did not dictate immediate action. There is however an alternative specification of the Taylor Rule that does motivate an immediate tightening. I call this a forward looking version of the Taylor Rule.
The best choice over time would appear to be to develop robust domestic institutions and pursue sound policies, including a disciplined monetary policy, and adopt a flexible exchange rate regime. An increased reliance on foreign direct investment relative to short-term portfolio capital might also be desirable. The real question is how to get there from where many emerging market economies find themselves today.