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On the theory of interest rate policy

  • Heinz-Peter Spahn


    (UniversitŠt Hohenheim, Institut fŸr Volkswirtschaftslehre, Lehrstuhl fŸr Wirtschaftspolitik, Stuttgart (Germany))

A new consensus in the theory of monetary policy has been reached pointing to the pivotal role of interest rates that are set in accordance with central banks' reaction functions. The decisive criterion of assessing the Taylor rule, inflation and monetary targeting is not the macrotheoretic foundation of these concepts. They serve as "languages" coordinating heterogeneous beliefs among policy makers and private agents, and should also allow rule-based discretionary policies when markets are in need of leadership. Contrary to the ECB dogma, the Fed is right to have an eye on the risks of inflation and unemployment.

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Article provided by Banca Nazionale del Lavoro in its journal BNL Quarterly Review.

Volume (Year): 54 (2001)
Issue (Month): 219 ()
Pages: 355-380

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Handle: RePEc:psl:bnlaqr:2001:42
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