Using a long-term interest rate as the monetary policy instrument

Bruce McGough (), Glenn Rudebusch () and John C. Williams ()

No 2004-22, Working Papers in Applied Economic Theory from Federal Reserve Bank of San Francisco

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.

Keywords: Monetary policy; Interest rates (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2004
View list of references

Published in Journal of Monetary Economics, v. 52, no. 5 (July 2005) pp. 855-879

Downloads: (external link)
http://www.frbsf.org/publications/economics/papers/2004/wp04-22bk.pdf (application/pdf)

Related works:
Journal Article: Using a long-term interest rate as the monetary policy instrument (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:fip:fedfap:2004-22

Ordering information: This working paper can be ordered from
http://www.frbsf.org/popups/fiporder.html

Access Statistics for this paper

More papers in Working Papers in Applied Economic Theory from Federal Reserve Bank of San Francisco
Contact information at EDIRC.
Series data maintained by Diane Rosenberger ().