Optimal monetary policy under heterogeneity in currency trade

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Titel: Optimal monetary policy under heterogeneity in currency trade
Författare: Bask, Mikael
Institution: Suomen Pankki
Serie: Bank of Finland Research Discussion Papers
Serienumber: 21/2007
Utgivningsår: 2007
Utgivningsdatum: 8.7.2007
Sidor: 26 s.
Nyckelord: avoin talous; rahapolitiikka; säännöt; korot; valuuttakauppa; valuuttamarkkinat; makrotalous; mallit; odotukset; valuuttakurssit; DSGE
JEL: C62; E52; F31; F41
Abstrakt: We embed an expectations-based optimal policy rule into a DSGE model for a small open economy that is augmented with trend extrapolation or chartism, which is a form of technical trading, in currency trade to examine the prerequisites for monetary policy. We find that a unique REE that is least-squares learnable is often the outcome when there is a limited amount of trend extrapolation, but that a less flexible inflation rate targeting may cause a multiplicity of REE. We also compute impulse-response functions for key macroeconomic variables to study how the economy returns to steady state after being hit by a shock. Keywords: determinacy, DSGE model, least-squares learning, targeting rule, technical trading, monetary policy JEL classification numbers: C62, E52, F31, F41
Licens: https://helda.helsinki.fi/bof/copyright

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