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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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File URL: http://www.sciencedirect.com/science/article/B6V84-51JPWMC-1/2/cd9ff40335b2beaa1d48f8fad9611114
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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. 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.
  2. Luisa Corrado & Sean Holly, 2004. " Habit Formation and Interest Rate Smoothing," CDMA Conference Paper Series 0404, Centre for Dynamic Macroeconomic Analysis.
  3. Castelnuovo, Efrem, 2003. "Taylor rules, omitted variables, and interest rate smoothing in the US," Economics Letters, Elsevier, vol. 81(1), pages 55-59, October.
  4. 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.
  5. Flamini, Alessandro & Fracasso, Andrea, 2011. "Household's preferences and monetary policy inertia," Economics Letters, Elsevier, vol. 111(1), pages 64-67, April.
  6. Michael Woodford, 1999. "Optimal monetary policy inertia," Proceedings, Federal Reserve Bank of San Francisco.
  7. Brian Sack & Volker Wieland, 1999. "Interest-rate smoothing and optimal monetary policy: a review of recent empirical evidence," Finance and Economics Discussion Series 1999-39, Board of Governors of the Federal Reserve System (U.S.).
  8. Michael Woodford, 2003. "Optimal Interest-Rate Smoothing," Review of Economic Studies, Wiley Blackwell, vol. 70(4), pages 861-886, October.
  9. Driffill, John & Rotondi, Zeno, 2007. "Inertia in Taylor Rules," CEPR Discussion Papers 6570, C.E.P.R. Discussion Papers.
  10. 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.
  11. Glenn D. Rudebusch, 2005. "Monetary policy inertia: fact or fiction?," Working Paper Series 2005-19, Federal Reserve Bank of San Francisco.
  12. Rudebusch, Glenn D., 2002. "Term structure evidence on interest rate smoothing and monetary policy inertia," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1161-1187, September.
  13. Alessandro Flamini, 2004. "Inflation Targeting and Exchange Rate Pass-Through," IHEID Working Papers 04-2004, Economics Section, The Graduate Institute of International Studies.
  14. Söderström, Ulf & Söderlind, Paul & Vredin, Anders, 2002. "New-Keynesian Models and Monetary Policy: A Reexamination of the Stylized Facts," SSE/EFI Working Paper Series in Economics and Finance 511, Stockholm School of Economics, revised 15 Aug 2003.
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