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On the theory of interest rate policy

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  • Heinz-Peter Spahn

    ()
    (UniversitŠt Hohenheim, Institut fŸr Volkswirtschaftslehre, Lehrstuhl fŸr Wirtschaftspolitik, Stuttgart (Germany))

Abstract

A new consensus in the theory of monetary policy has been reached pointing to the pivotal role of interest rates that are set in accordance with central banks' reaction functions. The decisive criterion of assessing the Taylor rule, inflation and monetary targeting is not the macrotheoretic foundation of these concepts. They serve as "languages" coordinating heterogeneous beliefs among policy makers and private agents, and should also allow rule-based discretionary policies when markets are in need of leadership. Contrary to the ECB dogma, the Fed is right to have an eye on the risks of inflation and unemployment.

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Bibliographic Info

Article provided by Banca Nazionale del Lavoro in its journal BNL Quarterly Review.

Volume (Year): 54 (2001)
Issue (Month): 219 ()
Pages: 355-380

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Handle: RePEc:psl:bnlaqr:2001:42

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Keywords: Interest Rates; Interest; Monetary Policy; Monetary; Policy;

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  2. Lars E.O. Svensson, 1999. "Monetary Policy Issues for the Eurosystem," NBER Working Papers 7177, National Bureau of Economic Research, Inc.
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  4. Taylor, John B, 2000. "Alternative Views of the Monetary Transmission Mechanism: What Difference Do They Make for Monetary Policy?," Oxford Review of Economic Policy, Oxford University Press, vol. 16(4), pages 60-73, Winter.
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  6. Krugman, Paul, 2000. "How Complicated Does the Model Have to Be?," Oxford Review of Economic Policy, Oxford University Press, vol. 16(4), pages 33-42, Winter.
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  9. Orphanides, Athanasios, 1999. "The Quest for Prosperity Without Inflation," Working Paper Series 93, Sveriges Riksbank (Central Bank of Sweden).
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  11. Bernanke, Ben S & Woodford, Michael, 1997. "Inflation Forecasts and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 653-84, November.
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  13. Krugman, Paul, 1989. "The Case for Stabilizing Exchange Rates," Oxford Review of Economic Policy, Oxford University Press, vol. 5(3), pages 61-72, Autumn.
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  17. Joseph Stiglitz, 1997. "Reflections on the Natural Rate Hypothesis," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 3-10, Winter.
  18. Fernando Alvarez & Robert E. Lucas, Jr. & Warren E. Weber, 2001. "Interest rates and inflation," Working Papers 609, Federal Reserve Bank of Minneapolis.
  19. Caplin, Andrew & Leahy, John, 1996. "Monetary Policy as a Process of Search," American Economic Review, American Economic Association, vol. 86(4), pages 689-702, September.
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Cited by:
  1. Doyle, Matthew, 2006. "On the Optimality of Delay in 'Monetary Policy As a Process of Search'," Staff General Research Papers 12503, Iowa State University, Department of Economics.
  2. Philip Arestis & Malcolm Sawyer, 2003. "Does the stock of money have any causal significance?," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 56(225), pages 113-136.

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