The Inflation Dynamics of Pegging Interest Rates
A relatively simple analysis of central banks pegging interest rates applies whenever prices are determined in a price-flexible model where the central bank pursues a singular price-level or nominal-income target. Applying the model empirically in the U.S. and find that prior to 1980, the Federal Reserve would have met its price-level or nominal- income targets best by using the M1 definition of money. However, after 1982, the Federal Reserve would have more effectively met is targets by pegging the interest rate. We also further the analysis in a general- equilibrium, cash-in-advance model with explicit state-contingent securities that complete markets.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
- William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, Oxford University Press, vol. 84(2), pages 197-216.
- Bennett T. McCallum, 1980.
"Price Level Determinacy with an Interest Rate Policy Rule and Rational Expectations,"
NBER Working Papers
0559, National Bureau of Economic Research, Inc.
- McCallum, Bennett T., 1981. "Price level determinacy with an interest rate policy rule and rational expectations," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 319-329.
- David Eagle, 2005. "Completing Markets in a One-Good, Pure Exchange Economy Without State-Contingent Securities," Finance 0501009, EconWPA.
- Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-254, April.
- David Eagle, 2005. "Price Indeterminacy Reinvented: Pegging Interest Rates While Targeting Prices, Inflation, or Nominal Income," Macroeconomics 0501028, EconWPA.
- Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
- David Eagle & Elizabeth Murff, 2005. "Logical Pitfalls of Assuming Bounded Solutions to Expectational Difference Equations," GE, Growth, Math methods 0501002, EconWPA.
- David Eagle & Dale Domian, 2005. "Quasi-Real Indexing-- The Pareto-Efficient Solution to Inflation Indexing," Finance 0509017, EconWPA.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:0502029. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.