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Short and Long Interest Rate Targets

  • Pedro Teles

    (Banco de Portugal, Universidade Catolica)

  • Isabel Correia

    (Banco de Portugal)

  • Bernardino Adao

    (Banco de Portugal)

A target for the short-term nominal interest rate does not pin down realized inflation. Neither does it pin down the term premia. Short and long rates are threrefore independent monetary policy instruments. A target of the term structure is equivalent to a peg of the returns on state-contingent nominal assets. These are the rates that should be targeted in order to pin down realized inflation.

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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 452.

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Date of creation: 2012
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Handle: RePEc:red:sed012:452
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  26. repec:bla:restud:v:72:y:2005:i:1:p:223-246 is not listed on IDEAS
  27. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2011. "The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 215-287.
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