Arbeitspapier
Instrument rules in monetary policy under heterogeneity in currency trade
We embed different instrument rules into a 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, this paper focuses on conditions for a determinate, least-squares learnable rational expectations equilibrium (REE). Under an interest rate rule with only contemporaneous macroeconomic data, the intensity of technical trading or trend-seeking in currency trade does not affect these conditions, except in the case of an extensive use of trend-seeking. On the other hand, if the central bank uses only forward-looking information in its interest rate rule, a determinate and learnable REE is a less likely outcome when trend-seeking in currency trade becomes more popular. The interest rate rule followed by the central bank in the model incorporates interest rate smoothing.
- ISBN
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978-952-462-394-0
- Language
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Englisch
- Bibliographic citation
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Series: Bank of Finland Research Discussion Papers ; No. 22/2007
- Classification
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Wirtschaft
Existence and Stability Conditions of Equilibrium
Monetary Policy
Foreign Exchange
Open Economy Macroeconomics
- Subject
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determinacy
DSGE model
interest rate rule
least-squares learning
technical trading
- Event
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Geistige Schöpfung
- (who)
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Bask, Mikael
- Event
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Veröffentlichung
- (who)
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Bank of Finland
- (where)
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Helsinki
- (when)
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2007
- Handle
- Last update
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10.03.2025, 11:41 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Bask, Mikael
- Bank of Finland
Time of origin
- 2007
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