Non-cashless New-keynesian models often include discretionary monetary policy expressed as a Taylor rule:

$1+i_t = (1+i)\left(\frac{1+\pi_t}{1+\pi}\right)^{\phi_\pi}\left(\frac{y_t}{y_t^n}\right)^{\phi_y}+\varepsilon_t^i$

Since it's a non-cashless economy, there's going to be another simultaneous equation representing money demand:

$m_t=f(i_t,\cdot)$, where $f_i<0$, and $m_t$ is real money balances.

Thanslating in terms of "real life" time series, in the TR $i_t$ represents the policy interest rate and in the money demand $i_t$ represents the opportunity cost of holding money. The time series for the first would be the same, and the second usually would be government no-risk bonds yield. My question is, which should I use particularly for developing countries?


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