Backward-looking interest-rate rules, interest-rate smoothing, and macroeconomic instability

Jess Benhabib, Stephanie Schmitt-Grohe and Martín Uribe (mu2166@columbia.edu)

Proceedings, 2003, 1379-1423

Abstract: The existing literature on the stabilizing properties of interest-rate feedback rules has stressed the perils of linking interest rates to forecasts of future inflation. Such rules have been found to give rise to aggregate fluctuations due to self-fulfilling expectations. In response to this concern, a growing literature has focused on the stabilizing properties of interest-rate rules whereby the central bank responds to a measure of past inflation. The consensus view that has emerged is that backward-looking rules contribute to protecting the economy from embarking on expectations-driven fluctuations. A common characteristic of the existing studies that arrive at this conclusion is their focus on local analysis. The contribution of this paper is to conduct a more global analysis.

Keywords: Economic stabilization; Interest rates; Monetary policy (search for similar items in EconPapers)
Date: 2003
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Related works:
Working Paper: Backward-Looking Interest Rate Rules, Interest Rate Smoothing and Macroeconomic Instability (2003)
Working Paper: Backward-looking interest-rate rules, interest-rate smoothing, and macroeconomic instability (2003)
Working Paper: Backward-Looking Interest-Rate Rules, Interest-Rate Smoothing, and Macroeconomic Instability (2003)
Working Paper: Backward-Looking Interest-Rate Rules, Interest-Rate Smoothing, and Macroeconomic Instability (2003)
Working Paper: Backward-Looking Interest-Rate Rules, Interest-Rate Smoothing, and Macroeconomic Instability (2003)
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