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When Preferences for a Stable Interest Rate Become Self‐Defeating

Ragna Alstadheim () and Øistein Røisland

Journal of Money, Credit and Banking, 2017, vol. 49, issue 2-3, 393-415

Abstract: Monetary policymakers often seem to have preferences for a stable interest rate, in addition to stable inflation and output. In this paper, we investigate the implications of having an interest rate level term in the loss function when the policymaker lacks commitment technology. We show that such preferences may become self‐defeating, in the sense that they generate a less stable interest rate than in the case without preferences for interest rate stability.

Date: 2017
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Working Paper: When preferences for a stable interest rate become self-defeating (2016) Downloads
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