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Central Banks Going Long

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  • Reis, Ricardo

Abstract

Central banks have sometimes turned their attention to long-term interest rates as a target or as a diagnosis of policy. This paper describes two historical episodes when this happened-the US in 1942-51 and the UK in the 1960s-and uses a model of inflation dynamics to evaluate monetary policies that rely on going long. It concludes that these policies for the most part fail to keep inflation under control. A complementary methodological contribution is to re-state the classic problem of monetary policy through interest-rate rules in a continuous-time setting where shocks follow diffusions in order to integrate the endogenous determination of inflation and the term structure of interest rates.

Suggested Citation

  • Reis, Ricardo, 2018. "Central Banks Going Long," CEPR Discussion Papers 12833, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12833
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    References listed on IDEAS

    as
    1. Reis, Ricardo, 2016. "Funding quantitative easing to target inflation," LSE Research Online Documents on Economics 67883, London School of Economics and Political Science, LSE Library.
    2. John H. Cochrane, 2011. "Determinacy and Identification with Taylor Rules," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 565-615.
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    5. Ricardo Reis, 2016. "Can the Central Bank Alleviate Fiscal Burdens?," NBER Working Papers 23014, National Bureau of Economic Research, Inc.
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    9. Robert E. Hall & Ricardo Reis, 2016. "Achieving Price Stability by Manipulating the Central Bank's Payment on Reserves," Economics Working Papers 16114, Hoover Institution, Stanford University.
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    11. Markus K. Brunnermeier & Yuliy Sannikov, 2016. "Macro, Money and Finance: A Continuous Time Approach," NBER Working Papers 22343, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    affine models; ceilings; pegs; Taylor rule; yield curve;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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