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.
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 EconWPA in its series Macroeconomics with number 0502029.
Length: 33 pages
Date of creation: 25 Feb 2005
Date of revision:
Note: Type of Document - pdf; pages: 33
Contact details of provider:
Web page: http://18.104.22.168
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)
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.:
- William Poole, 1970.
"Optimal choice of monetary policy instruments in a simple stochastic macro model,"
57, Board of Governors of the Federal Reserve System (U.S.).
- Poole, William, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, MIT Press, vol. 84(2), pages 197-216, May.
- William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
- David Eagle, 2005. "Completing Markets in a One-Good, Pure Exchange Economy Without State-Contingent Securities," Finance 0501009, EconWPA.
- Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
- Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
- David Eagle & Elizabeth Murff, 2005. "Logical Pitfalls of Assuming Bounded Solutions to Expectational Difference Equations," GE, Growth, Math methods 0501002, EconWPA.
- David Eagle, 2005. "Price Indeterminacy Reinvented: Pegging Interest Rates While Targeting Prices, Inflation, or Nominal Income," Macroeconomics 0501028, EconWPA.
- Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
- McCallum, Bennett T., 1981.
"Price level determinacy with an interest rate policy rule and rational expectations,"
Journal of Monetary Economics,
Elsevier, vol. 8(3), pages 319-329.
- Bennett T. McCallum, 1982. "Price Level Determinacy with an Interest Rate Policy Rule and Rational Expectations," NBER Working Papers 0559, National Bureau of Economic Research, Inc.
- David Eagle & Dale Domian, 2005. "Quasi-Real Indexing-- The Pareto-Efficient Solution to Inflation Indexing," Finance 0509017, EconWPA.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.