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Interest Rate Smoothing Rule as a Short term Monetary Policy Tool, Theoretical and Methodological Approach

Burak Darici

Journal of BRSA Banking and Financial Markets, 2010, vol. 4, issue 2, 39-66

Abstract: The aim of this study is to display the place of interest rate smoothing rule in literatüre by means of theory and metodoloji. While the primary aim of Central Banks is to maintain price stability, their secondary aim is to maintain and sustain financial stability. Interest rate smoothing is serving as a bridge in the process of monetary policy to maintain financial stability. The interest rate smoothing rule is a gradually partial adjustment process of the short term interest rate due to the change in the desired interest rate which shows financial stress. Contrary to the interest rate smoothing rule, classical Taylor Rule and other derivatives are not successful approaches in explaining the actual movement of short term interest rate. The interest rate smoothing rule is a powerful tool for maintaining confidence and reducing financial stress.

Keywords: Interest Rate Smoothing; Monetaray Policy; Financial Stability. (search for similar items in EconPapers)
JEL-codes: E58 E52 E44 (search for similar items in EconPapers)
Date: 2010
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Handle: RePEc:bdd:journl:v:4:y:2010:i:2:p:39-66