Why Do Central Banks Smooth Interest Rates?
AbstractIt is commonly observed that central banks respond gradually to economic shocks, moving the interest rate in small discrete steps in the same direction over an extended period of time. This paper examines the empirical evidence regarding central banks' smoothing of interest rates, paying particular attention to the case of Canada. It then reviews the alternative explanations of the stylized facts that have recently emerged in the literature.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 01-17.
Length: 31 pages
Date of creation: 2001
Date of revision:
Contact details of provider:
Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/
Monetary policy implementation;
Find related papers by JEL classification:
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-12-26 (All new papers)
- NEP-CBA-2001-12-26 (Central Banking)
- NEP-MAC-2001-12-04 (Macroeconomics)
- NEP-MON-2001-12-26 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Athanasios Orphanides, 1998.
"Monetary policy evaluation with noisy information,"
Finance and Economics Discussion Series
1998-50, Board of Governors of the Federal Reserve System (U.S.).
- Charles Goodhart, 1998. "Central Bankers and Uncertainty," FMG Special Papers sp106, Financial Markets Group.
- Michael Woodford, 1999.
"Optimal Monetary Policy Inertia,"
NBER Working Papers
7261, National Bureau of Economic Research, Inc.
- Woodford, Michael, 1999. "Optimal monetary policy inertia," CFS Working Paper Series 1999/09, Center for Financial Studies (CFS).
- Tiff Macklem & Alain Paquet & Louis Phaneuf, 1996. "Asymmetric Effects of Monetary Policy: Evidence from the Yield Curve," Cahiers de recherche CREFE / CREFE Working Papers 42, CREFE, Université du Québec à Montréal.
- Brian Sack, 1998. "Does the Fed act gradually? a VAR analysis," Finance and Economics Discussion Series 1998-17, Board of Governors of the Federal Reserve System (U.S.).
- Glenn D. Rudebusch, 1999.
"Is the Fed too timid? Monetary policy in an uncertain world,"
Working Papers in Applied Economic Theory
99-05, Federal Reserve Bank of San Francisco.
- Glenn D. Rudebusch, 2001. "Is The Fed Too Timid? Monetary Policy In An Uncertain World," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 203-217, May.
- Balvers, Ronald J & Cosimano, Thomas F, 1994. "Inflation Variability and Gradualist Monetary Policy," Review of Economic Studies, Wiley Blackwell, vol. 61(4), pages 721-38, October.
- James Yetman, 2001.
"Gaining Credibility for Inflation Targets,"
Computing in Economics and Finance 2001
34, Society for Computational Economics.
- John B. Taylor, 1999.
"A Historical Analysis of Monetary Policy Rules,"
in: Monetary Policy Rules, pages 319-348
National Bureau of Economic Research, Inc.
- Philip Lowe & Luci Ellis, 1997. "The Smoothing of Official Interest Rates," RBA Annual Conference Volume, in: Philip Lowe (ed.), Monetary Policy and Inflation Targeting Reserve Bank of Australia.
- Jim Engle-Warnick & Nurlan Turdaliev, 2010. "An experimental test of Taylor-type rules with inexperienced central bankers," Experimental Economics, Springer, vol. 13(2), pages 146-166, June.
- René Lalonde & Nicolas Parent, 2006. "The Federal Reserve's Dual Mandate: A Time-Varying Monetary Policy Priority Index for the United States," Working Papers 06-11, Bank of Canada.
- Efrem Castelnuovo, 2002.
"Squeezing the Interest Rate Smoothing Weight with a Hybrid Expectations Model,"
- Efrem Castelnuovo, 2003. "Squeezing the Interest Rate Smoothing Weight with a Hybrid Expectations Model," Working Papers 2003.6, Fondazione Eni Enrico Mattei.
- Castelnuovo, Efrem, 2003.
"Taylor rules, omitted variables, and interest rate smoothing in the US,"
Elsevier, vol. 81(1), pages 55-59, October.
- Efrem Castelnuovo, 2004. "Taylor rules, omitted variables, and interest rate smoothing in the US," Macroeconomics 0403009, EconWPA.
- Efrem Castelnuovo, 2003. "Taylor Rules and Interest Rate Smoothing in the US and EMU," Macroeconomics 0303002, EconWPA.
- Gerberding, Christina & Worms, Andreas & Seitz, Franz, 2004. "How the Bundesbank really conducted monetary policy: An analysis based on real-time data," Discussion Paper Series 1: Economic Studies 2004,25, Deutsche Bundesbank, Research Centre.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.