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Instrument rules in monetary policy under heterogeneity in currency trade

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  • Bask, Mikael

Abstract

We embed different instrument rules into Gal?and Monacelli's new Keynesian model for a small open economy that is augmented with technical trading in currency trade to examine the prerequisites for monetary policy. Specifically, conditions for a determinate and least squares learnable REE are in focus. When a contemporaneous data specification of the rule is used in policy-making, the degree of trend following in currency trade does not affect these conditions, except in case of an extensive use of trend following, whereas a forward expectations specification makes it less likely to have a determinate and learnable REE when the degree of trend following is increasing. We allow for interest rate inertia in the analysis.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economics and Business.

Volume (Year): 61 (2009)
Issue (Month): 2 ()
Pages: 97-111

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Handle: RePEc:eee:jebusi:v:61:y:2009:i:2:p:97-111

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Web page: http://www.elsevier.com/locate/jeconbus

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Keywords: Determinacy DSGE model Interest rate rule Least squares learning Technical trading;

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References

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Cited by:
  1. Bask, Mikael, 2007. "Long swings and chaos in the exchange rate in a DSGE model with a Taylor rule," Research Discussion Papers 19/2007, Bank of Finland.
  2. Bask, Mikael, 2011. "A Case for Interest Rate Inertia in Monetary Policy," Working Paper Series 2011:16, Uppsala University, Department of Economics.

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