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Household's preferences and monetary policy inertia

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  • Flamini, Alessandro
  • Fracasso, Andrea

Abstract

Interest rates set by central banks puzzlingly move with a certain inertia. We show that household's preferences can be important determinants of the optimal interest rate inertia due to their impact on the efficiency of the monetary policy transmission mechanism.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 111 (2011)
Issue (Month): 1 (April)
Pages: 64-67

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Handle: RePEc:eee:ecolet:v:111:y:2011:i:1:p:64-67

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

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Keywords: Optimal monetary policy Interest rate smoothing Household's preferences;

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References

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  1. Alessandro Flamini, 2004. "Inflation Targeting and Exchange Rate Pass-Through," IHEID Working Papers 04-2004, Economics Section, The Graduate Institute of International Studies.
  2. Castelnuovo, Efrem, 2003. "Taylor rules, omitted variables, and interest rate smoothing in the US," Economics Letters, Elsevier, vol. 81(1), pages 55-59, October.
  3. John Driffill & Zeno Rotondi, 2007. "Inertia in Taylor Rules," Birkbeck Working Papers in Economics and Finance 0720, Birkbeck, Department of Economics, Mathematics & Statistics.
  4. Woodford, Michael, 2000. "Optimal Monetary Policy Inertia," Seminar Papers 666, Stockholm University, Institute for International Economic Studies.
  5. Flamini, Alessandro & Fracasso, Andrea, 2011. "Household's preferences and monetary policy inertia," Economics Letters, Elsevier, vol. 111(1), pages 64-67, April.
  6. Michael Woodford, 2003. "Optimal Interest-Rate Smoothing," Review of Economic Studies, Wiley Blackwell, vol. 70(4), pages 861-886, October.
  7. Sack, Brian & Wieland, Volker, 2000. "Interest-rate smoothing and optimal monetary policy: a review of recent empirical evidence," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 205-228.
  8. Glenn D. Rudebusch, 2005. "Monetary policy inertia: fact or fiction?," Working Paper Series 2005-19, Federal Reserve Bank of San Francisco.
  9. Woodford, Michael, 1999. "Optimal monetary policy inertia," CFS Working Paper Series 1999/09, Center for Financial Studies (CFS).
  10. Luisa Corrado & Sean Holly, 2004. " Habit Formation and Interest Rate Smoothing," CDMA Conference Paper Series 0404, Centre for Dynamic Macroeconomic Analysis.
  11. Cinzia Alcidi & Alessandro Flamini & Andrea Fracasso, 2011. "Policy Regime Changes, Judgment and Taylor rules in the Greenspan Era," Economica, London School of Economics and Political Science, vol. 78(309), pages 89-107, January.
  12. Masakatsu Okubo, 2008. "On the Intertemporal Elasticity of Substitution under Nonhomothetic Utility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(5), pages 1065-1072, 08.
  13. Castelnuovo Efrem, 2006. "The Fed's Preference for Policy Rate Smoothing: Overestimation Due to Misspecification?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(2), pages 1-22, August.
  14. Rudebusch, Glenn D., 2002. "Term structure evidence on interest rate smoothing and monetary policy inertia," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1161-1187, September.
  15. Ulf Söderström & Paul Söderlind & Anders Vredin, 2005. "New-Keynesian Models and Monetary Policy: A Re-examination of the Stylized Facts," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(3), pages 521-546, 09.
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Cited by:
  1. Flamini Alessandro, 2012. "Economic Stability and the Choice of the Target Inflation Index," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(2), pages 1-37, April.
  2. Alessandro Flamini, 2012. "Interest Rate Forecasts in Inflation Targeting Open-Economies," DEM Working Papers Series 027, University of Pavia, Department of Economics and Management.
  3. Alessandro Flamini & Iftekhar Hasan & Costas Milas, 2014. "Open-economy Distribution Forecast Targeting, Macroeconomic Volatility and Financial Implication," DEM Working Papers Series 080, University of Pavia, Department of Economics and Management.
  4. Alessandro Flamini & Andrea Fracasso, 2009. "Household’s Preferences and Monetary Policy Inertia," Working Papers 2009002, The University of Sheffield, Department of Economics, revised Feb 2009.

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