The Inflation Dynamics of Pegging Interest Rates
AbstractA relatively simple analysis of central banks pegging interest rates applies whenever prices are determined in a price-flexible model where the central bank pursues a singular price-level or nominal-income target. Applying the model empirically in the U.S. and find that prior to 1980, the Federal Reserve would have met its price-level or nominal- income targets best by using the M1 definition of money. However, after 1982, the Federal Reserve would have more effectively met is targets by pegging the interest rate. We also further the analysis in a general- equilibrium, cash-in-advance model with explicit state-contingent securities that complete markets.
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Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 0502029.
Length: 33 pages
Date of creation: 25 Feb 2005
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Note: Type of Document - pdf; pages: 33
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interest-rate targeting; price-level targeting; nominal-income targeting; cash-in-advance models; monetary economics; price determinism;
Find related papers by JEL classification:
- E - Macroeconomics and Monetary Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-16 (All new papers)
- NEP-CBA-2005-04-16 (Central Banking)
- NEP-MAC-2005-04-16 (Macroeconomics)
- NEP-MON-2005-04-16 (Monetary Economics)
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