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Interest Rate Pass-Through, Monetary Policy Rules and Macroeconomic Stability

  • Claudia Kwapil

    (Oesterreichische Nationalbank)

  • Johann Scharler

    (Oesterreichische Nationalbank)

In this paper we analyze equilibrium determinacy in a sticky price model in which the pass-through from policy rates to retail interest rates is sluggish and potentially incomplete. In addition, we empirically characterize and compare the interest rate pass-through process in the euro area and the U.S. We find that if the pass-through is incomplete in the long run, the standard Taylor principle is insufficient to guarantee equilibrium determinacy. Our empirical analysis indicates that this result might be particularly relevant for bank-based financial systems as for instance that in the euro area.

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Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2006 with number 65.

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Date of creation: 02 Feb 2007
Date of revision:
Handle: RePEc:mmf:mmfc06:65
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