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Financial shocks and the maturity of the monetary policy rate

  • Gerlach-Kristen, Petra
  • Rudolf, Barbara

Monetary policy is typically formulated with a very short-term interest rate, while longer rates matter in the transmission mechanism. We show that financial market shocks impact less on the macroeconomy if policy is set with a longer rate.

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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 107 (2010)
Issue (Month): 3 (June)
Pages: 333-337

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Handle: RePEc:eee:ecolet:v:107:y:2010:i:3:p:333-337
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  1. Eijffinger, Sylvester C W & Schaling, Eric & Verhagen, Willem, 2000. "The Term Structure of Interest Rates and Inflation Forecast Targeting," CEPR Discussion Papers 2375, C.E.P.R. Discussion Papers.
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  3. Jeffrey C. Fuhrer & George R. Moore, 1993. "Inflation persistence," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  4. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
  5. Kevin J. Lansing & Bharat Trehan, 2003. "Forward-looking behavior and optimal discretionary monetary policy," Working Paper Series 2001-03, Federal Reserve Bank of San Francisco.
  6. Ralf Fendel, 2009. "A note on Taylor rules and the term structure," Applied Economics Letters, Taylor & Francis Journals, vol. 16(11), pages 1097-1101.
  7. Hess, Alan C & Kamara, Avraham, 2005. "Conditional Time-Varying Interest Rate Risk Premium: Evidence from the Treasury Bill Futures Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(4), pages 679-98, August.
  8. Gerlach-Kristen Petra, 2004. "Interest-Rate Smoothing: Monetary Policy Inertia or Unobserved Variables?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-19, March.
  9. Mariano Kulish, 2005. "Should Monetary Policy use Long-term Rates?," Boston College Working Papers in Economics 635, Boston College Department of Economics.
  10. Sims, Christopher A, 2002. "Solving Linear Rational Expectations Models," Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 1-20, October.
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