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Interest rates and the conduct of monetary policy

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  • Goodfriend, Marvin

Abstract

The paper describes key aspects of actual Federal Reserve interest rate targeting procedures and addresses a number of issues in light of these stylized facts. It reviews the connection between rate smoothing and price level trend-stationarity. It critiques interest rate targeting as inflation tax smoothing. It argues that stabilization policy implemented by interest rate targeting may inadvertently induce martingale-like behavior in nominal rates and inflation. The paper explains why central bankers prefer continuity of the short rate and indirect rate targeting. Lastly, it surveys empirical evidence of the Fed's influence over short-term interest rates.
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Suggested Citation

  • Goodfriend, Marvin, 1991. "Interest rates and the conduct of monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 34(1), pages 7-30, January.
  • Handle: RePEc:eee:crcspp:v:34:y:1991:i::p:7-30
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    1. Auerbach, Alan J & Hines, James R, Jr, 1988. "Investment Tax Incentives and Frequent Tax Reforms," American Economic Review, American Economic Association, pages 211-216.
    2. Barry P. Bosworth, 1985. "Taxes and the Investment Recovery," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(1), pages 1-45.
    3. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    4. repec:fth:harver:1465 is not listed on IDEAS
    5. Barro, Robert J, 1977. "Unanticipated Money Growth and Unemployment in the United States," American Economic Review, American Economic Association, pages 101-115.
    6. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-247, February.
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