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Interest Rate Smoothing Rule as a Short term Monetary Policy Tool, Theoretical and Methodological Approach

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  • Burak Darici

Abstract

The aim of this study is to display the place of interest rate smoothing rule in literatüre by means of theory and metodoloji. While the primary aim of Central Banks is to maintain price stability, their secondary aim is to maintain and sustain financial stability. Interest rate smoothing is serving as a bridge in the process of monetary policy to maintain financial stability. The interest rate smoothing rule is a gradually partial adjustment process of the short term interest rate due to the change in the desired interest rate which shows financial stress. Contrary to the interest rate smoothing rule, classical Taylor Rule and other derivatives are not successful approaches in explaining the actual movement of short term interest rate. The interest rate smoothing rule is a powerful tool for maintaining confidence and reducing financial stress.

Suggested Citation

  • Burak Darici, 2010. "Interest Rate Smoothing Rule as a Short term Monetary Policy Tool, Theoretical and Methodological Approach," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 4(2), pages 39-66.
  • Handle: RePEc:bdd:journl:v:4:y:2010:i:2:p:39-66
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    Keywords

    Interest Rate Smoothing; Monetaray Policy; Financial Stability.;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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