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Household's preferences and monetary policy inertia

  • Flamini, Alessandro
  • Fracasso, Andrea

Interest rates set by central banks puzzlingly move with a certain inertia. We show that household's preferences can be important determinants of the optimal interest rate inertia due to their impact on the efficiency of the monetary policy transmission mechanism.

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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 111 (2011)
Issue (Month): 1 (April)
Pages: 64-67

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Handle: RePEc:eee:ecolet:v:111:y:2011:i:1:p:64-67
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. Woodford, M., 1999. "Optimal Monetary Policy Inertia.," Papers 666, Stockholm - International Economic Studies.
  2. Michael Woodford, 2003. "Optimal Interest-Rate Smoothing," Review of Economic Studies, Oxford University Press, vol. 70(4), pages 861-886.
  3. Alessandro Flamini & Andrea Fracasso, 2009. "Household’s Preferences and Monetary Policy Inertia," Working Papers 2009002, The University of Sheffield, Department of Economics, revised Feb 2009.
  4. Luisa Corrado & Sean Holly, 2004. " Habit Formation and Interest Rate Smoothing," CDMA Conference Paper Series 0404, Centre for Dynamic Macroeconomic Analysis.
  5. Glenn D. Rudebusch, 2001. "Term structure evidence on interest rate smoothing and monetary policy inertia," Working Paper Series 2001-02, Federal Reserve Bank of San Francisco.
  6. John Driffill & Zeno Rotondi, 2007. "Inertia in Taylor Rules," WEF Working Papers 0032, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
  7. Flamini, Alessandro, 2007. "Inflation targeting and exchange rate pass-through," Journal of International Money and Finance, Elsevier, vol. 26(7), pages 1113-1150, November.
  8. Sack, Brian & Wieland, Volker, 2000. "Interest-rate smoothing and optimal monetary policy: a review of recent empirical evidence," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 205-228.
  9. Cinzia Alcidi & Alessandro Flamini & Andrea Fracasso, 2011. "Policy Regime Changes, Judgment and Taylor rules in the Greenspan Era," Economica, London School of Economics and Political Science, vol. 78(309), pages 89-107, January.
  10. Glenn D. Rudebusch, 2005. "Monetary policy inertia: fact or fiction?," Working Paper Series 2005-19, Federal Reserve Bank of San Francisco.
  11. Masakatsu Okubo, 2008. "On the Intertemporal Elasticity of Substitution under Nonhomothetic Utility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(5), pages 1065-1072, 08.
  12. Efrem Castelnuovo, 2004. "Taylor rules, omitted variables, and interest rate smoothing in the US," Macroeconomics 0403009, EconWPA.
  13. Castelnuovo Efrem, 2006. "The Fed's Preference for Policy Rate Smoothing: Overestimation Due to Misspecification?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(2), pages 1-22, August.
  14. Ulf Söderström & Paul Söderlind & Anders Vredin, 2005. "New-Keynesian Models and Monetary Policy: A Re-examination of the Stylized Facts," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(3), pages 521-546, 09.
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