Overnight Monetary Policy in the United States: Active or Interest-Rate Smoothing?
AbstractThis paper investigates the behavior of agents in the United States money and Fed funds markets for the period 1982-2004. It was found that, while agents are forward looking in the money market, their behavior is policy invariant in the Fed funds market. Consequently, the optimal overnight monetary policy would be an interest-ratesmoothing process. It was found, in fact, that such a policy has been followed in the United States. Furthermore, this paper suggests that the lack of a policy invariant relationship between overnight and short-term interest rates is another explanation for conducting an interest-rate-smoothing policy.
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Bibliographic InfoPaper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 05-07.
Length: 51 pages
Date of creation: Jul 2005
Date of revision: Mar 2010
Publication status: Published: in Journal of Macroeconomics, Vol. 32, No. 1 (March 2010), pp. 378–391
Note: JEL codes: E43, E51, E52, E58
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