› › Interest Rate Smoothing And Optimal Monetary Policy








On the Optimality of Interest Rate Smoothing

Author : Sergio Rebelo

Publisher :

Page : 44 pages

File Size : 22,7 MB

Release : 1997

Category : Economic development

ISBN :

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Book Description

This paper studies some continuous-time cash-in-advance models in which interest rate smoothing is optimal. We consider both deterministic and stochastic models. In the stochastic case we obtain two results of independent interest: (i) we study what is, to our knowledge, the only version of the neoclassical model under uncertainty that can be solved in closed form in continuous time; and (ii) we show how to characterize the competitive equilibrium of a stochastic continuous time model that cannot be computed by solving a planning problem. We also discuss the scope for monetary policy to improve welfare in an economy with a suboptimal real competitive equilibrium, focusing on the particular example of an economy with externalities.



Optimal Monetary Policy in a Small Open Economy with Habit Formation and Nominal Rigidities

Author : Woon Gyu Choi

Publisher : International Monetary Fund

Page : 40 pages

File Size : 41,35 MB

Release : 2003

Category : Business & Economics

ISBN :

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Book Description

Introducing habit formation into an open economy macroeconomic model with price stickiness, we examine the characteristics of an optimal monetary policy. We find that, first, the optimal policy rule entails interest rate smoothing and responds to the lagged values of the foreign interest rate and domestic technology shocks as well as their current values. Second, habit formation enriches the dynamics of the economy with a persistent, hump-shaped response of consumption to shocks. Finally, when habit formation does matter, the optimal policy rule achieves a greater welfare improvement over alternative policy rules by achieving lower macroeconomic variability.



Optimal Monetary Policy, the Zero Bound and the Term Structure of Interest Rates

Author : Sven R. Skallsjö

Publisher :

Page : 47 pages

File Size : 50,13 MB

Release : 2004

Category :

ISBN :

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Book Description

The paper studies optimal monetary policy and its implication for the term structure of interest rates when the nominal short rate is bounded at zero. We state the monetary authority's optimization problem in continuous time according to two specifications, interest rate stabilization and interest rate smoothing. For the former the optimization problem is solved analytically, while numerical procedures are adopted for the latter. The paper then turns to study implications for the term structure of interest rates under risk-neutrality. Term structure equations are solved numerically and implications for yield curves and yield volatility curves are discussed. Data for a low-interest rate country like Japan for 1996-2003 exhibits s-shaped yield curves and yield volatility curves. According to our results this shape is consistent with a smoothing objective for the short rate.



Monetary Policy Rules

Author : John B. Taylor

Publisher : University of Chicago Press

Page : 460 pages

File Size : 17,28 MB

Release : 2007-12-01

Category : Business & Economics

ISBN : 0226791262

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Book Description

This timely volume presents the latest thinking on the monetary policy rules and seeks to determine just what types of rules and policy guidelines function best. A unique cooperative research effort that allowed contributors to evaluate different policy rules using their own specific approaches, this collection presents their striking findings on the potential response of interest rates to an array of variables, including alterations in the rates of inflation, unemployment, and exchange. Monetary Policy Rules illustrates that simple policy rules are more robust and more efficient than complex rules with multiple variables. A state-of-the-art appraisal of the fundamental issues facing the Federal Reserve Board and other central banks, Monetary Policy Rules is essential reading for economic analysts and policymakers alike.