Post the great financial crisis (GFC) of 2008–2009, there has been a surge in the macroeconomics literature on aggregate uncertainty. Although the recent literature has recognized the adverse real effects of global uncertainty shocks in emerging market economies (EMEs), the role of monetary policy in offsetting these adverse effects and their link with the exchange rates is not explored in the literature. We find that the currently followed interest rate rules (IRRs) under a flexible inflation-targeting regime are ineffective in stabilizing the domestic economy during periods of high global uncertainty in the EMEs. Using a small open economy new Keynesian DSGE model with Epstein–Zin preferences and second-moment demand shocks, we compare and propose alternate monetary policy rules that significantly reduce welfare losses. We find that the best monetary policy rule in terms of welfare depends on the nature of shock that is, first-moment or second-moment shock.

Winter legumes can substitute for applied nitrogen fertilization of corn. Stochastic dominance was used to order net revenues from legume and applied nitrogen alternatives. Stochastic dominance orderings indicate that systems combining vetch with low applied nitrogen fertilization (50 and 100 pounds/acre, respectively) were risk inefficient. By contrast, vetch and 150 pounds/acre applied nitrogen maximized expected net revenue and was risk efficient for a wide range of risk-averse and risk-seeking behavior. Farmers with these risk attitudes may not reduce applied nitrogen if they switch to a vetch cover. Extremely risk-averse or risk-seeking farmers would not prefer winter legumes.