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Monetary Policy Inertia: Fact or Fiction?

  • Glenn D. Rudebusch

    (Federal Reserve Bank of San Francisco)

Many interpret estimated monetary policy rules as suggesting that central banks conduct very sluggish partial adjustment of short-term policy interest rates. In contrast, others argue that this appearance of policy inertia is an illusion and simply reflects the spurious omission of important persistent influences on the actual setting of policy. Similarly, the real-world implications of the theoretical arguments for policy inertia are open to debate. However, empirical evidence on policy gradualism obtained by examining expectations of future monetary policy embedded in the term structure of interest rates is definitive and indicates that the actual amount of policy inertia is quite low.

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Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 2 (2006)
Issue (Month): 4 (December)

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Handle: RePEc:ijc:ijcjou:y:2006:q:4:a:4
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