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

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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.

Suggested Citation

  • Amir Kia, 2005. "Overnight Monetary Policy in the United States: Active or Interest-Rate Smoothing?," Carleton Economic Papers 05-07, Carleton University, Department of Economics, revised Mar 2010.
    • Handle: RePEc:car:carecp:05-07
    Note: JEL codes: E43, E51, E52, E58
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    File URL: http://www.carleton.ca/economics/wp-content/uploads/cep05-07.pdf
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    References listed on IDEAS

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