The Taylor rule, wealth effects and the exchange rate

Rudan Wang, Bruce Morley, Javier Ordonez

Research output: Contribution to journalArticle

3 Citations (Scopus)
156 Downloads (Pure)

Abstract

In this study, we develop Taylor rule and Taylor rule-based exchange rate models that consider wealth effects as represented by both asset prices and asset wealth. Using data for Australia, Sweden, the UK and the US, we find that effects of asset prices and wealth on the Taylor rule vary depending on the country and on the form that wealth takes. Out-of-sample forecasting capacities of the wealth-augmented Taylor rule model and Taylor rule-based exchange rate model outperform conventional models and random walk theories for these countries.
Original languageEnglish
Pages (from-to)282-301
Number of pages20
JournalReview of International Economics
Volume24
Issue number2
Early online date19 Jan 2016
DOIs
Publication statusPublished - 3 Apr 2016

Keywords

  • exchange rate, wealth effect, forecast

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