Should Monetary Policy use Long-term Rates?

Mariano Kulish

No 635, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: This paper studies two roles that long-term nominal interest rates can play in the conduct of monetary policy in a New Keynesian model. The first allows long-term rates to enter the reaction function of the monetary authority. The second considers the possibility of using long-term rates as instruments of policy. It is shown that in both cases a unique rational expectations equilibrium exists. Reacting to movements in long yields does not improve macroeconomic performance as measured by the loss function. However, long-term rates turn out to be better instruments when the relative concern of the monetary authority for inflation volatility is high.

Keywords: interest rates; monetary policy (search for similar items in EconPapers)
Pages: 46 pages
Date: 2005-11-21
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-mac and nep-mon
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Citations: View citations in EconPapers (8)

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Journal Article: Should Monetary Policy Use Long-Term Rates? (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:635

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