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Interest rate pass-through, monetary policy rules and macroeconomic stability

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  • Kwapil, Claudia
  • Scharler, Johann

Abstract

In this paper we analyze equilibrium determinacy in a sticky price model in which the pass-through from policy rates to retail interest rates is sluggish and potentially incomplete. In addition, we empirically characterize and compare the interest rate pass-through process in the euro area and the U.S. We find that if the pass-through is incomplete in the long run, the standard Taylor principle is insufficient to guarantee equilibrium determinacy. Our empirical analysis indicates that this result might be particularly relevant for bank-based financial systems as for instance that in the euro area.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 29 (2010)
Issue (Month): 2 (March)
Pages: 236-251

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Handle: RePEc:eee:jimfin:v:29:y:2010:i:2:p:236-251

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Web page: http://www.elsevier.com/locate/inca/30443

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Keywords: Interest rate pass-through Interest rate rules Equilibrium determinacy Stability;

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