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Overnight Monetary Policy in the United States: Active or Interest-Rate Smoothing?

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Author Info
Amir Kia () (Department of Finance and Economics, Utah Valley University)
Abstract

This 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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Publisher Info
Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 05-07.

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Length: 51 pages
Date of creation: Jul 2005
Date of revision:
Publication status: Published: Carleton Economic Paper
Handle: RePEc:car:carecp:05-07

Note: JEL codes: E43, E51, E52, E58
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Related research
Keywords: Interest-rate smoothing; discretionary overnight monetary policy; forward-looking agents; money market; and Fed funds market.;

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