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Monetary shocks and the nominal interest rate

Author

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  • Marini, G.

    (Tilburg University, Center For Economic Research)

Abstract

This paper reconsiders the effects of monetary shocks on the nominal interest rate in a standard macroeconomic model. It is determined that, when the policy objective is controlling the money stock, money supply shocks generate a situation of excess demand for money. The positive relationship between nominal interest rates and monetary innovations in the United States following the 1979 change in regime is, thus, not puzzling but perfectly consistent with standard theory. Nominal interest rate decreases are possible only when "fine-tuning" rules are adopted. Copyright 1992 by The London School of Economics and Political Science.
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Suggested Citation

  • Marini, G., 1989. "Monetary shocks and the nominal interest rate," Discussion Paper 1989-38, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:99704fec-40b4-4b86-9002-433b2fc7d036
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    References listed on IDEAS

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    1. Barro, Robert J, 1984. "Rational Expectations and Macroeconomics in 1984," American Economic Review, American Economic Association, vol. 74(2), pages 179-182, May.
    2. V. Vance Roley & Carl E. Walsh, 1985. "Monetary Policy Regimes, Expected Inflation, and the Response of Interest Rates to Money Announcements," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(Supplemen), pages 1011-1039.
    3. McCallum, Bennett T., 1983. "On non-uniqueness in rational expectations models : An attempt at perspective," Journal of Monetary Economics, Elsevier, vol. 11(2), pages 139-168.
    4. McCallum, Bennett T., 1986. "Some issues concerning interest rate pegging, price level determinacy, and the real bills doctrine," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 135-160, January.
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