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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

Related research

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

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References

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  1. Brian Sack & Volker Wieland, 1999. "Interest-rate smoothing and optimal monetary policy: a review of recent empirical evidence," Finance and Economics Discussion Series 1999-39, Board of Governors of the Federal Reserve System (U.S.).
  2. 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.
  3. 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.
  4. Woodford, Michael, 1999. "Optimal Monetary Policy Inertia," Manchester School, University of Manchester, vol. 67(0), pages 1-35, Supplemen.
  5. Söderström, Ulf & Söderlind, Paul & Vredin, Anders, 2002. "New-Keynesian Models and Monetary Policy: A Reexamination of the Stylized Facts," Working Paper Series in Economics and Finance 511, Stockholm School of Economics, revised 15 Aug 2003.
  6. Flamini, Alessandro & Fracasso, Andrea, 2011. "Household's preferences and monetary policy inertia," Economics Letters, Elsevier, vol. 111(1), pages 64-67, April.
  7. Efrem Castelnuovo, 2004. "Taylor rules, omitted variables, and interest rate smoothing in the US," Macroeconomics 0403009, EconWPA.
  8. Glenn D. Rudebusch, 2006. "Monetary Policy Inertia: Fact or Fiction?," International Journal of Central Banking, International Journal of Central Banking, vol. 2(4), December.
  9. Michael Woodford, 2003. "Optimal Interest-Rate Smoothing," Review of Economic Studies, Oxford University Press, vol. 70(4), pages 861-886.
  10. Alessandro Flamini, 2004. "Inflation Targeting and Exchange Rate Pass-Through," IHEID Working Papers 04-2004, Economics Section, The Graduate Institute of International Studies.
  11. Sean Holly & Luisa Corrado, 2004. "Habit formation and Interest-Rate Smoothing," Computing in Economics and Finance 2004 215, Society for Computational Economics.
  12. Glenn D. Rudebusch, 2001. "Term structure evidence on interest rate smoothing and monetary policy inertia," Working Paper Series 2001-02, Federal Reserve Bank of San Francisco.
  13. John Driffill & Zeno Rotondi, 2007. "Inertia in Taylor Rules," Birkbeck Working Papers in Economics and Finance 0720, Birkbeck, Department of Economics, Mathematics & Statistics.
  14. 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.
  15. Woodford, Michael, 1999. "Optimal monetary policy inertia," CFS Working Paper Series 1999/09, Center for Financial Studies (CFS).
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Citations

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Cited by:
  1. Alessandro Flamini, 2012. "Interest Rate Forecasts in Inflation Targeting Open-Economies," DEM Working Papers Series 027, University of Pavia, Department of Economics and Management.
  2. 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.
  3. 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.

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