Working Paper
Using a Long-Term Interest Rate as the Monetary Policy Instrument
Abstract: Using a short-term interest rate as the monetary policy instrument can be problematic near its zero bound constraint. An alternative strategy is to use a long-term interest rate as the policy instrument. We find when Taylor-type policy rules are used to set the long rate in a standard New Keynesian model, indeterminacy--that is, multiple rational expectations equilibria--may often result. However, a policy rule with a long rate policy instrument that responds in a \"forward-looking\" fashion to inflation expectations can avoid the problem of indeterminacy.
https://doi.org/10.24148/wp2004-22
Status: Published in Journal of Monetary Economics, v. 52, no. 5 (July 2005) pp. 855-879
Access Documents
File(s):
File format is application/pdf
https://www.frbsf.org/wp-content/uploads/wp04-22bk.pdf
Description: PDF - view
File(s):
File format is text/html
https://www.frbsf.org/research-and-insights/publications/working-papers/2004/12/using-a-long-term-interest-rate-as-the-monetary-policy-instrument/
Description: FRBSF - view
File(s):
File format is text/html
https://fraser.stlouisfed.org/title/working-papers-federal-reserve-bank-san-francisco-7038/using-a-long-term-interest-rate-monetary-policy-instrument-639186
Description: FRASER - view
Bibliographic Information
Provider: Federal Reserve Bank of San Francisco
Part of Series: Working Paper Series
Publication Date: 2004-12-01
Number: 2004-22