Short and long interest rate targets
In: Journal of Monetary Economics, Band 66, S. 95-107
477516 Ergebnisse
Sortierung:
In: Journal of Monetary Economics, Band 66, S. 95-107
In: Oxford development studies, Band 42, Heft 1
ISSN: 1360-0818
In: Oxford development studies, Band 42, Heft 1, S. 86-110
ISSN: 1469-9966
In this paper, we analyze the relation between interest rate targets and money supply in a (bubble-free) rational expectations equilibrium of a standard cash-in-advance model. We examine lump-sum injections of money aimed to implement interest rate sequences that satisfy interest rate target rules. An interest rate target with a positive inflation feedback in general corresponds to money growth rates rising with inflation. When prices are not completely flexible, this implies that a non-destabilizing money supply cannot implement a forward-looking and active interest rate rule. This principle also applies for an alternative model version with an interest elastic money demand. The implementation of a Taylor-rule then requires money injections that lead to explosive or oscillatory equilibrium sequences. In contrast, an inertial interest rate target can be implemented by a non-destabilizing money supply, even if the inflation feedback exceeds one, which is often found in interest rate rule regressions.
BASE
In this paper, we analyze the relation between interest rate targets and money supply in a (bubble-free) rational expectations equilibrium of a standard cash-in-advance model. We examine contingent monetary injections aimed to implement interest rate sequences that satisfy interest rate target rules. An interest rate target with a positive inflation feedback in general corresponds to money growth rates rising with inflation. When prices are not completely flexible, this implies that a non-destabilizing money supply cannot implement a forward-looking and active interest rate rule. This principle also applies for an alternative model version with an interest elastic money demand. The implementation of a Taylor-rule then requires a money supply that leads to explosive or oscillatory equilibrium sequences. In contrast, an inertial interest rate target can be implemented by a non-destabilizing money supply, even if the inflation feedback exceeds one, which is often found in interest rate rule regressions.
BASE
The application of exchange rates target zones modeling to interest rates allows interpreting the puzzles that emerged with the public debt euro area crisis, namely the nonlinear behavior of the interest rates and the fact that some stand-alone countries, not belonging to the euro area, have not been subject to speculative attacks in spite of equally large public debt-to-gross domestic product (GDP) ratios. As a matter of fact, this model shows that in the case of a noncredible upper threshold for the interest rate (that may be due to both the lack of room for increasing further the required government primary surplus and/or the absence of a monetary authority acting as a lender of last resort), the resulting public debt unsustainability determines an interest rate nonlinearity and makes the crisis possible for public debt levels that would be stable in the presence of a credible interest rate target.
BASE
In: Working paper 483
In: The quarterly review of economics and finance, Band 84, S. 61-67
ISSN: 1062-9769
In: Journal of international economics, Band 31, Heft 1-2, S. 27-54
ISSN: 0022-1996
In: IMF Working Paper No. 90/31
SSRN
In: NBER Working Paper No. w3218
SSRN
In: Journal of economics and business, Band 54, Heft 2, S. 159-191
ISSN: 0148-6195
In: NBER working paper series 16707
"While the degree of policy inertia in central banks' reaction functions is a central ingredient in theoretical and empirical monetary economics, the source of the observed policy inertia in the U.S. is controversial, with tests of competing hypotheses such as interest-smoothing and persistent-shocks theories being inconclusive. This paper employs real time data; nested specifications with flexible time series structures; narratives; interest rate forecasts of the Fed, financial markets, and professional forecasters; and instrumental variables to discriminate competing explanations of policy inertia. The presented evidence strongly favors the interest-smoothing explanation and thus can help resolve a key puzzle in monetary economics"--National Bureau of Economic Research web site
In: Journal of Monetary Economics, Band 33, Heft 1, S. 201-230
In: NBER Working Paper No. w16707
SSRN
Working paper