Instrument rules in monetary policy under heterogeneity in currency trade

Mikael Bask

Journal of Economics and Business, 2009, vol. 61, issue 2, 97-111

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.

Keywords: Determinacy; DSGE; model; Interest; rate; rule; Least; squares; learning; Technical; trading (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:61:y:2009:i:2:p:97-111

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