Using Interest Rates as the Instrument of Monetary Policy: Beware Real effects, Positive Feedbacks, and Discontinuities

Mark Setterfield

Ensayos Económicos, 2014, vol. 1, issue 70, 7-22

Abstract: This paper discusses central banks’ use of the interest rate as the instrument of monetary policy, in light of a reconsideration of macroeconomic theory induced by the financial crisis and Great Recession. Three main guiding principles for the future conduct of interest rate policy are identified: beware real effects; beware positive feedbacks; and beware discontinuities. The paper also reflects on the use of policy targets as a “quasi-instrument” of stabilization policy.

Keywords: central banks; interest rates; monetary policy; New Consensus; Post-Keynesian economy (search for similar items in EconPapers)
JEL-codes: E12 E43 E52 E58 (search for similar items in EconPapers)
Date: 2014
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http://www.bcra.gov.ar/pdfs/investigaciones/70_Setterfield.pdf Spanish version (versión en Español) (application/pdf)

Related works:
Working Paper: Using Interest Rates as the Instrument of Monetary Policy: Beware Real effects, Positive Feedbacks, and Discontinuities (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bcr:ensayo:v:1:y:2014:i:70:p:7-22

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