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Interest-Rate Smoothing: Monetary Policy Inertia or Unobserved Variables? Author info | Abstract | Publisher info | Download info | Related research | Statistics Petra Gerlach-Kristen (Hong Kong University)
Interest-rate smoothing is traditionally attributed to the gradual adjustment of monetary policy to shocks. Rudebusch (2002) argues that smoothing can also arise spuriously if an autocorrelated variable is incorrectly excluded from the estimated reaction function. This paper presents a model which discriminates between these two explanations using U.S. data. We find that both seem to matter, but that policy inertia appears to be less important than suggested by the existing literature. Further, the excluded variable is likely to reflect financial market conditions.
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Article provided by Berkeley Electronic Press in its journal Contributions to Macroeconomics .
Volume (Year): 4 (2004)
Issue (Month): 1 ()
Pages: 1169-1169
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Keywords: Interest-rate smoothing policy inertia Taylor rule Find related papers by JEL classification: D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
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