Short and Long Interest Rate Targets

Isabel Correia (), Pedro Teles and Adão, Bernardino
Authors registered in the RePEc Author Service: Bernardino Adao ()

No 7935, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We show that short and long nominal interest rates are independent monetary policy instruments. The pegging of both helps solving the problem of multiplicity that arises when only short rates are used as the instrument of policy. A peg of the nominal returns on assets of different maturities is equivalent to a peg of state-contingent interest rates. These are the rates that should be targeted in order to implement unique equilibria. At the zero bound, while it is still possible to target state-contingent interest rates, that is no longer equivalent to the target of the term structure.

Keywords: Long rates; Monetary policy; Monetary policy instruments; Multiplicity of equilibria; Short rates; Sticky prices; Term structure (search for similar items in EconPapers)
JEL-codes: E3 E4 E5 (search for similar items in EconPapers)
Date: 2010-07
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Short and long interest rate targets (2014)
Working Paper: Short and Long Interest Rate Targets (2012)
Working Paper: Short and long interest rate targets (2010)
Working Paper: Short and Long Interest Rate Targets (2010)
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