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Abstract

Monetary policy is typically formulated with a very short-term interest rate, while longer rates matter in the transmission mechanism. We show that financial market shocks impact less on the macroeconomy if policy is set with a longer rate.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 107 (2010)
Issue (Month): 3 (June)
Pages: 333-337

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Handle: RePEc:eee:ecolet:v:107:y:2010:i:3:p:333-337

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Monetary policy framework Maturity of the policy interest rate Financial shocks Three-month libor;

References

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1. Hess, Alan C & Kamara, Avraham, 2005. "Conditional Time-Varying Interest Rate Risk Premium: Evidence from the Treasury Bill Futures Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(4), pages 679-98, August.
2. Jeff Fuhrer & George Moore, 1993. "Inflation persistence," Finance and Economics Discussion Series 93-17, Board of Governors of the Federal Reserve System (U.S.).
   
   • Jeff Fuhrer & George Moore, 1993. "Inflation persistence," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
   • Fuhrer, Jeff & Moore, George, 1995. "Inflation Persistence," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 127-59, February.
   • Jeff Fuhrer & George Moore, 1993. "Inflation persistence," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
3. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
4. Mariano Kulish, 2005. "Should Monetary Policy use Long-term Rates?," Boston College Working Papers in Economics 635, Boston College Department of Economics.
   
   • Mariano Kulish, 2007. "Should Monetary Policy Use Long-Term Rates?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 15.
5. Lansing, Kevin J. & Trehan, Bharat, 2003. "Forward-looking behavior and optimal discretionary monetary policy," Economics Letters, Elsevier, vol. 81(2), pages 249-256, November.
   
   • Kevin J. Lansing & Bharat Trehan, 2003. "Forward-looking behavior and optimal discretionary monetary policy," Working Papers in Applied Economic Theory 2001-03, Federal Reserve Bank of San Francisco.
6. Petra Gerlach-Kristen, 2004. "Interest-Rate Smoothing: Monetary Policy Inertia or Unobserved Variables?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 0(1), pages 3.
7. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
   
   • Svensson, Lars E.O., 1998. "Open-Economy Inflation Targeting," Seminar Papers 638, Stockholm University, Institute for International Economic Studies.
   • Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers.
   • Lars E. O. Svensson, 2000. "Open-Economy Inflation Targeting," NBER Working Papers 6545, National Bureau of Economic Research, Inc.
   • Svensson, L.E.O., 1998. "Open-Economy Inflation Targeting," Papers 638, Stockholm - International Economic Studies.
8. McGough, Bruce & Rudebusch, Glenn D. & Williams, John C., 2005. "Using a long-term interest rate as the monetary policy instrument," Journal of Monetary Economics, Elsevier, vol. 52(5), pages 855-879, July.
   
   • Bruce McGough & Glenn D. Rudebusch & John C. Williams, 2004. "Using a long-term interest rate as the monetary policy instrument," Working Papers in Applied Economic Theory 2004-22, Federal Reserve Bank of San Francisco.
9. Eijffinger, Sylvester C W & Schaling, Eric & Verhagen, Willem, 2000. "The Term Structure of Interest Rates and Inflation Forecast Targeting," CEPR Discussion Papers 2375, C.E.P.R. Discussion Papers.
   
   • Eijffinger, S.C.W. & Schaling, E. & Verhagen, W.H., 1998. "The Term Structure of Interest Rates and Inflation Forecast Targeting," Discussion Paper 1998-85, Tilburg University, Center for Economic Research.
10. Ralf Fendel, 2009. "A note on Taylor rules and the term structure," Applied Economics Letters, Taylor and Francis Journals, vol. 16(11), pages 1097-1101.
11. Sims, Christopher A, 2002. "Solving Linear Rational Expectations Models," Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 1-20, October.
    
    • Christopher Sims, 2001. "Matlab Code for Solving Linear Rational Expectations Models," QM&RBC Codes 11, Quantitative Macroeconomics & Real Business Cycles.

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Citations

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Cited by:

1. Heryan, Tomas & Stavarek, Daniel, 2010. "How related are interbank and lending interest rates? Evidence on selected EU countries," MPRA Paper 27276, University Library of Munich, Germany.
2. Petra Gerlach-Kristen & Barbara Rudolf, 2010. "Macroeconomic and interest rate volatility under alternative monetary operating procedures," BIS Working Papers 319, Bank for International Settlements.
   
   • Petra Gerlach-Kristen & Barbara Rudolf, 2010. "Macroeconomic and interest rate volatility under alternative monetary operating procedures," Working Papers 2010-12, Swiss National Bank.

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