International Economics and Economic Policy

, Volume 6, Issue 3, pp 283–313

Robust Taylor rules under heterogeneity in currency trade

Original Paper

Abstract

It is demonstrated in this paper that the exchange rate should be included in the Taylor rule when there is heterogeneity in currency trade to have a determinate and least squares learnable rational expectations equilibrium that also is desirable in an inflation rate targeting regime. Moreover, for certain Taylor rule parameterizations, these properties of the interest rate rule are robust against the degree of technical trading in currency trading.

Keywords

Currency trade Determinacy Fundamental analysis Heterogeneity Inflation rate targeting Interest rate rule Least squares learning Technical analysis 

JEL codes

E52 F31 

Copyright information

© Springer-Verlag 2009

Authors and Affiliations

  1. 1.Department of Economics and StatisticsÅbo Akademi UniversityTurkuFinland
  2. 2.Department of EconomicsUmeå UniversityUmeåSweden

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