The Inflation Dynamics of Pegging Interest Rates

David Eagle

Macroeconomics from University Library of Munich, Germany

Abstract: 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.

Keywords: interest-rate targeting; price-level targeting; nominal-income targeting; cash-in-advance models; monetary economics; price determinism (search for similar items in EconPapers)
JEL-codes: E (search for similar items in EconPapers)
Pages: 33 pages
Date: 2005-02-25
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: Type of Document - pdf; pages: 33
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0502029

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