Why are target interest rate changes so persistent?
By: Olivier Coibion, Yuriy Gorodnichenko
Contributors: Gorodnichenko, Yuriy; National Bureau of Economic Research
Series: NBER working paper series -- working paper 16707; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16707.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "While the degree of policy inertia in central banks' reaction functions is a central ingredient in theoretical and empirical monetary economics, the source of the observed policy inertia in the U.S.  is controversial, with tests of competing hypotheses such as interest-smoothing and persistent-shocks theories being inconclusive.  This paper employs real time data; nested specifications with flexible time series structures; narratives; interest rate forecasts of the Fed, financial markets, and professional forecasters; and instrumental variables to discriminate competing explanations of policy inertia.  The presented evidence strongly favors the interest-smoothing explanation and thus can help resolve a key puzzle in monetary economics"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 4/21/2011.

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